Active investors often utilize a breakout investment strategy in their search for strong returns. This involves homing in on stocks trading within a tight range and buying them when they step out of this band. In keeping with this approach, they are offloaded whenever they move below this narrow band. If properly implemented, such a strategy could deliver impressive returns.
Picking Prospective Candidates
In order to identify breakout stocks, you must first determine their resistance and support levels. A resistance level is the barrier which must be broken so as to be identified as a breakout stock. Meanwhile, a support level is the floor for the stock’s movement.
At the breakout level, demand for the stock has peaked, making it a natural choice for traders. On the other hand, when a stock hits the support floor, traders are eager to offload it. In order to spot breakout stocks, you would have to see which of these are on the brink of breaking the resistance barrier or those that have just breached this level.
Has a Genuine Breakout Occurred?
The primary risk associated with such a strategy is that the decision to buy an apparent breakout candidate has been incorrectly timed. When a stock moves above the resistance level, it should be a highly prized commodity for traders. However, whether such a breakout is at all genuine is another matter altogether.
For a bona fide breakout, the stock’s earlier resistance barrier should become its new support level. This only happens if the trading channel that has been established is tested by observing long-term price trends. The strength of the support and resistance levels can be ascertained only through such a study. Despite the risk of misidentification, correctly identifying such stocks can yield considerable returns, even at a price which may not seem attractive at first glance.
Screening Parameters
• Percentage price change over four weeks between 10% and 20% (Stocks which are showing considerable price increases, but whose gains are not excessive.)
• Current Price /52-Week High greater than or equal to 0.9 (Stocks which are trading 90% close to their 52-week highs.)
• Zacks Rank less than or equal to #2
(Only Strong Buy and Buy rated stocks can get through.)
• Beta for 60 months less than or equal to 2
(Stocks which move by a greater degree than the broader market but within a reasonable limit.)
• Current price less than or equal to $20 (Stocks which are reasonably priced.)
These criteria narrow down the universe of over 7896 stocks to only 10.
Here are the top five stocks that meet these criteria:
ZAGG Inc. ZAGG designs, manufactures and distributes protective clear coverings and accessories for consumer electronic and hand-held devices, worldwide. The stock has a Zacks Rank #1 (Strong Buy) and its average EPS surprise over the last four quarters is 52.1%.
Papa Murphy's Holdings, Inc. FRSH operates as a franchisor and operator of the Take 'N' Bake pizza chain in the United States. Its average EPS surprise over the last four quarters is 147.7%. Papa Murphy's Holdings carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
QuickLogic Corporation QUIK is a semiconductor provider of ultra-low power, comprehensive, flexible sensor processing solutions enabling significantly longer battery life for the Smartphone, Wearable, and IoT markets. The stock has a Zacks Rank #2 (Buy) and its average EPS surprise over the last four quarters is 9.5%.
FireEye, Inc. FEYE provides security platforms for cyber-attacks to enterprises and governments. FireEye has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 27.3%
Rigel Pharmaceuticals, Inc. RIGL is a clinical-stage drug development company that discovers and develops novel, small-molecule drugs for the treatment of inflammatory diseases, cancer and viral diseases. The stock has a Zacks Rank #2 and its average EPS surprise over the last four quarters is 9.3%.
You can get the rest of the stocks meeting these criteria by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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FireEye, Inc. (FEYE): Free Stock Analysis Report
QuickLogic Corporation (QUIK): Free Stock Analysis Report
ZAGG Inc (ZAGG): Free Stock Analysis Report
Rigel Pharmaceuticals, Inc. (RIGL): Free Stock Analysis Report
Papa Murphy's Holdings, Inc. (FRSH): Free Stock Analysis Report
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Zacks Investment Research
March 31, 2017 at 06:55PM
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from Swarup Gupta
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