Stock Quotes in this Article: CPRX, GMCR, NFLX, SNSS, SRPT

BALTIMORE (Stockpickr) -- Trading stocks that trigger major breakouts can lead to massive profits. Once a stock trends to a new high or takes out a prior overhead resistance point, then it’s free to find new buyers and momentum players that can ultimately push the stock significantly higher.

One recent example of a successful breakout trade that I highlighted was home health services and hospice services player Gentiva Health Services (GTIV). In "5 Stocks Poised for Breakouts" on Aug. 3, I mentioned that GTIV was approaching a big breakout if it could manage to clear some key overhead resistance levels at $7.24 to $7.33 a share with high volume.

Guess what happened? Shares of GTIV blasted through those overhead resistance levels with monster volume. The stock never looked back, and it went on to skyrocket towards its current price of $10.80 a share. That’s a massive move higher in just a few weeks, and one that could have easily been traded with sound disciple in case the trade never triggered.

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Trading breakouts is not a new game on Wall Street. This strategy has been mastered by legendary traders such as William O’Neal, Stan Weinstein and Nicolas Darvas. These pros know that once a stock starts to break out above past resistance levels, and hold above those breakout prices, then it can easily trend significantly higher.

With that in mind, here’s a look at five stocks that are setting up to break out and trade higher from current levels.

Sunesis Pharmaceuticals

One biotechnology and drugs stock that’s trading very close to triggering a major breakout trade is Sunesis Pharmaceuticals (SNSS), which is focused on the development and commercialization of oncology therapeutics for the treatment of solid and hematologic cancers. This stock is off to a hot start in 2012, with shares up a whopping 180% so far. I also featured Sunesis recently in "5 Biotech Stocks Under $10 Blasting Higher."

This company has a catalyst on the horizon; the phase III single interim analysis for its Valor leukemia treatment will be conducted sometime in September. The company has already enrolled 391 patients of the 450 planned for this safety and data study.

If you take a look at the chart for Sunesis Pharmaceuticals, you’ll notice that this stock has been uptrending very strong for the last six months, with shares making mostly higher lows and higher highs, which is bullish technical price action. This stock just found buyers right off its 50-day moving average of $2.98 a share, and it’s now quickly moving within range of triggering a major breakout trade. The upside volume for SNSS has also been increasing dramatically as it approaches this potential breakout play.

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Traders should now look for long-biased traders in SNSS once it manages to break out above some near-term overhead resistance levels at $3.27 to $3.38 a share and then above $3.57 to $3.69 a share with high volume. Look for a sustained move or close above all of those levels with volume that hits near or above its three-month average action of 289,147 shares. If that breakout triggers soon, then SNSS should easily head north of $4 a share and possibly tag $5 a share before that catalyst in September.

One could look to buy SNSS off any weakness to anticipate the breakout and simply use a stop that sits just below its 50-day moving average of $2.98 a share. One could also just buy off strength once SNSS clears $3.27 to $3.38 a share with decent volume and then add above the next tier of resistance levels. I would use a stop at around $3.10 if you buy off strength once SNSS clears $3.27 with volume.

Keep in mind that SNSS is a favorite target of the short-sellers. The current short interest as a percentage of the float for SNSS is very high at 11.6%. If that breakout triggers soon, then look for the shorts to help fuel the run higher as the rush to cover some of their bearish bets.

Green Mountain Coffee Roasters

A stock in the food processing complex that’s trending close to triggering a major breakout trade is Green Mountain Coffee Roasters (GMCR), which is engaged in the specialty coffee and coffee maker businesses. This stock has been hammered by the bears so far in 2012, with shares down over 44% so far.

If you take a look at the chart for Green Mountain Coffee Roasters, you’ll see that this stock was slammed by the short-sellers during the last six months, with shares dropping from over $65 to its recent low of $17.11 a share. During that sharp move lower, shares of GMCR have consistently made lower highs and lower lows, which is bearish technical price action. That said, shares of GMCR have now bounced hard off that low of $17.11, and it’s moved back above its 50-day moving average of $20.99 a share. That move has pushed GMCR within range of triggering a major breakout trade.

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Market players should now look for long-biased traders in GMCR if this stock can manage to trigger a breakout trade above some key overhead resistance levels at $25.39 a share, and then above $26.20 to $26.89 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 6,544,340 shares. If that breakout triggers soon, then GMCR will have a great chance of re-testing and possibly taking out its gap down day high from back in May at $30.29 a share.

One can look to buy GMCR off any weakness to anticipate that breakout, and simply use a stop near some key near-term support at $22.55 a share. Or one could just buy off strength once GMCR starts to clear the first tier of those breakout levels, and then simply use a stop that’s a few percentage points below your entry. I would add to either position once GMCR takes out $30.29 with heavy volume.

This is another heavily-shorted stock that is hated on Wall Street. The current short interest as a percentage of the float for GMCR is extremely high at 26.8%. The bears have also been increasing their bets from the last reporting period by 18.6%, or by about 5.49 million shares. Look for a big short-squeeze to develop if GMCR challenges that previous gap from back in May.

Catalyst Pharmaceuticals Partners

Another stock in the biotechnology and drugs complex that’s uptrending strong and nearing a major breakout trade is Catalyst Pharmaceuticals Partners (CPRX), which is focused on the development and commercialization of prescription drugs targeting addiction and diseases of the central nervous system. This stock is off to a decent start in 2012, with shares up over 10% so far.

If you look at the chart for Catalyst Pharmaceuticals Partners, you’ll notice that this stock has been uptrending very strong since it formed a perfect double bottom chart pattern back in June at 50 cents a share. After bottom at 50 cents, this stock exploded higher to its recent high of $1.64 a share. During that monster run, shares of CPRX have been making higher lows and higher highs, which is bullish technical price action. This stock has experienced a few pullbacks during the last month, and off each of those moves it has made higher lows. Now shares of CPRX are trending within range of triggering a major breakout trade.

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Traders should now look for long-biased trades in CPRX if it can manage to trigger a near-term breakout trade above some key overhead resistance levels at $1.50 to $1.64 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 539,561 shares. If we get that action soon, then CPRX will have a great chance of trading well north of $2 a share. It’s even possible that CPRX could hit $3 a share off a high-volume breakout.

One could look to buy this stock off any weakness and simply anticipate that breakout. If you get long off weakness, then simply use a stop at around $1.34 a share or down to $1.20 a share as a last resort support zone. You could also get long off strength once $1.50 is cleared and then simply use a stop just below $1.34 to $1.25 a share.

Netflix

Another stock that looks poised to trigger a major breakout trade is Internet TV broadcasting player Netflix (NFLX), which provides Internet subscription services for TV shows and movies in the U.S. and internationally. This stock has been smashed by the short-sellers during the last six months, with shares down by a whopping 45%.

If you look at the chart for Netflix, you’ll notice that this stock recently ran into heavy resistance at around $85 to $86.50 a share in July. After failing to clear those resistance levels, shares of NFLX plunged and gapped down from over $80 to below $60 a share with monster selling volume. Following that gap down, shares of NFLX went on to make a new low of $52.81 a share. That said, shares of NFLX have now started to rebound sharply with the stock trading at around $63 a share. That rebound has pushed NFLX within range of triggering a major breakout trade.

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Traders should now look for long-biased traders in NFLX if this stock can manage to take out its gap down day high of $66.80 a share from back in July with high volume. Look for a sustained move or close above $66.80 with volume that registers near or above its three-month average action of 4,858,760 shares. If that breakout triggers soon, then look for NFLX to rip higher as it attempts to re-fill some of that previous gap. This stock could easily trend north of $70 a share if that breakout triggers soon.

Since this is simply a breakout trade for a play off a move into that gap, I wouldn’t give this very much room to the downside if you buy off weakness. If you get long off weakness, simply use a stop at around Thursday’s low of $62.80 a share. I would rather get long off strength once NFLX clears $66.80 with high volume, and then simply use a stop at $65 to $64 a share.

This is another favorite target of the bears on Wall Street. The current short interest as a percentage of the float for NFLX is extremely high at 28.6%. The bears have also been increasing their bets from the last reporting period by 23.6%, or by about 2.94 million shares. Look for some short-covering to hit NFLX if this stock can get into that gap from back in July.

For another take on Netflix, it shows up on a list of 6 Sucker Stocks to Avoid at All Costs.

Sarepta Therapeutics

My final idea that could be ready to trigger a major breakout trade is biotechnology and drugs player Sarepta Therapeutics (SRPT), which is focused on the discovery and development of RNA-based therapeutics for the treatment of both rare and infectious diseases.

If you look at the chart for Sarepta Therapeutics, you’ll notice that this stock has experienced two sharp spikes higher this week off of some near-term support at $9 a share with strong upside volume. Volume for those spikes was 3.9 million and 1.6 million shares, which is well above its three-month average volume of 821,273 shares. Following those spikes, shares of SRPT have so far been holding its gains, which is bullish technical action. This price trend is quickly pushing SRPT within range of triggering a major near-term breakout trade.

Traders should now look for long-biased traders in SRPT once it manages to clear some near-term overhead resistance at $10.78 a share with high volume. Look for a sustained move or close above $10.78 with volume that hits near or above its three-month average action of 821,273 shares. If that breakout triggers soon, then SRPT will have a great chance of hitting $12 to $13 a share in the near-term, or possibly even higher.

One could look to get long SRPT off weakness, and simply use a stop right around that key near-term support level at $9 a share. A better bet might be to get long once SRPT sustains a move or close above $10.78 with high volume, and simply use a stop right below $10 a share. Either way, I would avoid long trades below $9, and stalk this for a breakout over $10.78 a share.

To see more breakout candidates, check out the Breakout Stocks of the Week portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.

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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.