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Breakouts

Breakout Stocks and Surge Pattern Scans

 

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Breakouts, Price Reversals, and Stock Surge Patterns

We scan thousands of stocks to find breakouts, price reversals, and stocks that are surging in price. These patterns are very attractive to traders. Stocks that have just had a breakout have overcome overhead resistance. Investor interest in them is very high. There are enough new “believers” in the stock to more than buy up all the shares being sold by those wanting to get out at the area of “resistance.” For that reason, breakouts attract attention and even more buyers. Prices often accelerate or surge on a breakout.

We scan for price reversals because they also attract attention. For this scan, we are most interested in stocks that are starting to surge after their short-term moving average has changed from trending downward to trending upward. When a stock has been in a prolonged downtrend, a great deal of pessimism has been factored into the stock’s price. Usually long trends generate downside momentum and the selling has become somewhat overdone. Changing the stock’s direction is like changing the direction of an ocean liner. Therefore, when a price reversal occurs, traders are interested. Why? Because the reversal means there has been enough new buying interest to absorb and reverse all that negative momentum. By definition, a price reversal occurs at the early stage of a new trend. Most people want to buy at the beginning of a new trend, especially if the price begins to surge.

Price surges are located by our scanner because stocks that are surging in price also draw new attention. A price surge results when there is a sudden influx of new buy orders. New buying interest may be the result of higher earnings expectations, a new product, a favorable FDA ruling, a new cure or discovery, or some other exciting news. The price surge is the mark of new investor enthusiasm for the prospects of a company. Traders love to buy a stock that has just had a price or momentum surge because a surging stock enables them to obtain a greater return in less time with less risk.

The price reversals and surge components of this scanner do not require that a stock be in a trading range with upper and lower boundaries just before the alert is given. However, our algorithm has a subroutine that does look for that kind of breakout. The subroutine looks for stocks that have been in consolidation. Those stocks have repeatedly been turned back by resistance at the upper boundary of the trading range. Because they are the subject of considerable investor interest, they do not decline far when they are turned back by that resistance. In other words, they are in a relatively narrow trading range (chart illustrations are at the bottom of this page). Eventually, buying interest builds until the stock is able to break through that overhead resistance. This scanner looks for all of the above (reversals, surges, and breakouts). Therefore, some stocks may be listed because they have broken out of a trading range, some may have just had a non-trading range “breakout,” and others may be listed for reasons other than a breakout (as described above).

Note: Because the algorithms are scanning for several patterns, you may find that a stock is included on the alert list that had a breakout a week or more ago, and you might consider the alert to be a little late. In that case, ask yourself if the alert was generated for some other reason. For example, the stock may have made the list because of a recent price surge rather than because of a breakout. A breakout or reversal may have happened a week or more ago and may have generated an alert at that time, but the stock may be back on the list for another reason that would make the alert timely. Our algorithms can detect several patterns that would make a stock an “item of interest.” Stocks that surge after a recent reversal or after exceeding a previous high would definitely be items of interest. The alerts are not buy signals. They are intended to draw attention to situations that warrant a closer look. It will be up to you to decide whether or not the pattern is of sufficient interest to you to act on it. To see how current these lists are, click on New or Old? 

The Lists

The following list is an out-of-date example and should not be considered current.  The market had been struggling for over a month and in a fairly steep decline for nearly a week when the list was generated.  The purpose of the example is to show the layout of our reports, not to give current purchase candidates.  Stocks are listed in the order of their volume surge (% Ch Vol).  Those with the greatest volume surge are at the top of the list.  The subscriber lists consist of up to 100 stocks. [“Mom” is 10-day momentum]

As of Wed p.m. After Close of market Sym Close % Ch % Ch Vol Mom
EXACT SCIENCES EXAS 58.58 11.12 539.0 15.38%
CLOUD PEAK ENERGY CLD 4.00 22 533.3 24.22%
DICKS SPORTING DKS 38.35 26 452.9 17.28%
SPARTANNASH SPTN 22.92 21.40 289.3 29.78%
ZYNGA CL A ZNGA 4.32 3.35 278.3 6.14%
AMTECH SYSTEMS ASYS 10.22 11.57 255.8 14.06%
NAVIGATOR HOLDINGS NVGS 11.70 4.93 242.2 6.36%
APPLIED OPTOELECTRONICS AAOI 40.62 13.72 238.3 25.37%
FIRST TRUST NORTH AMERICAN ENERG EMLP 22.96 1.15 226.1 1.19%
DIREXION DAILY REAL EST BULL 3X DRN 19.72 4.23 219.7 11.73%
ZIOPHARM ONCOLGY ZIOP 4.94 12 216.5 9.29%
MAIDEN HOLDINGS MHLD 8.45 6.96 214.3 16.15%
VASCO DATA SECURITY INTL VDSI 21.80 5.31 202.1 4.81%
MOVADO GROUP MOV 49.20 16.59 191.5 24.56%
KBR  KBR 18.76 6.47 189.7 11.01%
PIMCO MUNICIPAL INCOM PMF 13.34 1.21 189.0 2.46%
ACORDA THERAPEUTICS ACOR 26.30 3.95 188.2 7.35%
IRIDIUM COMMUNICATIONS IRDM 14.95 10.74 182.3 29.44%
PIMCO CALIFORNIA MUNICI INCOME I PCK 8.29 1 174.6 1.72%
COLUMBUS MCKINNON CMCO 41.75 10.25 174.1 17.84%
G III APPAREL GROUP GIII 41.57 5.03 170.1 9.57%
WELLCARE HEALTH WCG 226.99 2.64 169.9 5.17%
CONTINENTAL BUILDING PRODUCTS CBPX 30.10 1.52 154.3 3.44%
GASLOG PARTNERS GLOP 24.65 0 149.7 1.65%
UNITED MICR ELCTRNS ADR REP 5 UMC 2.76 2.22 146.4 1.10%
CBL AND ASSOCIATES PROP REIT CBL 5.26 8.45 144.1 24.35%
ATTUNITY ATTU 11.69 11.12 142.6 9.97%
TELEDYNE TECH TDY 204.05 3 141.3 4.31%
ARROWHEAD PHARMACEUTICALS ARWR 10.89 5.73 132.5 13.44%
SIRIUS XM HOLDINGS SIRI 7.12 2.01 127.9 3.64%
GENMARK DIAGNOSTICS GNMK 7.70 8.76 124.7 16.31%
INVESCO ADVANTAGE MUN I VKI 10.73 0.85 124.7 2.29%
POWERSHARES S&P SMALLCAP LOW VOL XSLV 48.27 1.28 123.4 4.35%
ISTAR REIT STAR 11.00 1.76 122.3 2.80%
WSFS FINANCIAL WSFS 53.30 2 121.6 4.00%
HDFC BANK ADR REP 3 HDB 105.17 8.62 119.6 5.71%
FAIR ISAAC FICO 184.32 1.39 115.2 3.39%
VICOR  VICR 43.30 4 109.6 10.60%
ENPHASE ENERGY ENPH 6.23 6.50 106.3 17.55%
CRESTWOOD EQUITY PARTNERS CEQP 33.45 4.04 105.6 11.69%
FINISH LINE CL A FINL 13.59 0.37 105.3 0.22%
VALMONT INDS VMI 149.50 1.91 103.5 3.46%
VANGUARD GROWTH VUG 149.20 1.13 102.7 1.33%
CORESITE REALTY REIT COR 107.89 1.11 102.5 2.39%
FIRST TRUST TECHNOLOGY ALPHADEX FXL 57.44 0.91 99.4 1.38%
ULTRAGENYX PHARMACEUTICAL RARE 72.31 4.57 98.3 15.35%
VANGUARD RUSSELL 1000 GROWTH VONG 146.91 1 97.8 1.53%
WASHINGTON PRIME GROUP WPG 7.66 2 94.2 13.15%
RUDOLPH TECHNOLOGIES RTEC 33.70 1.97 93.9 5.48%
INTEGRATED DEVICE TECHNOLOGY IDTI 33.96 1.22 92.6 9.09%
ELDORADO RESORTS ERI 45.35 0.89 84.6 5.22%
NANOMETRICS NANO 41.18 3.70 83.7 8.86%
FOUNDATION MEDICINE FMI 99.15 6 76.8 28.18%
CHENIERE ENERGY PARTNERS CQP 35.94 2.60 76.6 12.14%
PENNANTPARK FLOATING RATE CAPITA PFLT 13.64 1 76.1 0.52%
VANGUARD EXTENDED MARKET VXF 118.18 1 75.3 2.28%
PIMCO MUNICIPAL INCOME I PML 13.20 1 74.1 2.48%
TREDEGAR TG 24.25 2.11 72.6 16.31%
AUTOHOME ADR REP CL A ATHM 109.07 6.29 70.8 2.38%
RED LION HOTELS RLH 11.05 3 69.4 8.33%
POWER INTEGRATIONS POWI 76.05 0.86 64.9 6.89%
VANGUARD CONSUMER DISCRETIONARY VCR 166.17 1 63.8 1.91%
MASIMO MASI 100.22 1.55 63.4 4.18%
UMH PROPERTIES REIT UMH 15.15 0.53 61.8 8.84%
MONOLITHIC POWER SYSTEMS MPWR 133.84 1.75 61.7 6.03%
SCHOLASTIC SCHL 45.18 2 61.1 6.36%
PIMCO STRATEGIC INCOM RCS 9.74 2 60.7 3.73%
CLEAN ENERGY FUELS CLNE 3.11 8 60.3 51.71%
EQUITY RESIDENTIAL REIT EQR 63.82 3.17 58.5 4.62%
AES  AES 12.67 2.10 56.8 3.01%
DNP SELECT INCOM DNP 11.11 0.18 56.5 2.02%
OPPENHMR REV WGHTD ULTR DIV RDIV 37.88 1.69 56.3 3.97%
NASDAQ NDAQ 93.44 1 55.9 3.88%
PUBLIC SERVICE ENTERPRISE GROUP PEG 52.69 0.11 55.7 4.88%
SPDR S&P MIDCAP 400 MDY 358.59 1.53 55.3 2.04%
TETRA TECH TTEK 55.10 2.89 53.9 5.76%
ELLINGTON MORTGAGE REIT ORD SH EARN 11.72 1.30 52.6 4.46%
AQUA AMERICA WTR 35.69 1 52.0 6.06%
ISHARES S&P MID CAP 400 GRWTH IJK 227.02 1.18 49.7 1.88%
WGL HOLDINGS WGL 88.44 0.24 47.7 0.43%
WEINGARTEN RLTY REIT WRI 29.36 2 47.5 8.38%
MFA FINANCIAL REIT MFA 7.82 0.64 46.3 1.82%
LEXICON PHARMACEUTICALS LXRX 10.39 6 44.9 5.91%
BROOKS AUTOMATION BRKS 32.71 1.49 44.1 12.79%
SPORTSMANS WAREHOUSE HOLDINGS SPWH 5.40 2.47 43.5 17.39%
PRIMERICA PRI 99.75 2.68 42.1 5.22%
ROYCE MICRO CAPITA RMT 10.16 1.30 39.1 2.94%
BRUNSWICK BC 64.51 3 37.6 5.75%
WESTAMERICA BANCORPORATION WABC 57.80 2.94 36.7 1.37%
MATRIX SERVICE MTRX 19.55 4.55 35.9 13.01%
ISHARES US REAL ESTATE IYR 78.33 1.27 34.4 3.16%
CHENIERE ENERGY LNG 66.98 6 34.4 7.36%
UNIVERSAL INSURANCE HOLDINGS UVE 36.25 3.28 33.3 5.69%
US PHYSICAL THERAPY USPH 96.45 1.37 32.5 6.93%
SPDR WELLS FARGO PREFERRED STOCK PSK 43.09 0.19 31.5 1.06%
WEST PHARM SVC WST 94.12 2.07 31.1 5.52%
MARKETAXESS HOLDINGS MKTX 216.15 2.47 31.1 7.37%
CME GROUP CL A CME 165.49 4.29 30.1 3.14%
BLACKSTONE MORTGAGE CL A REIT BXMT 31.87 0.70 29.8 1.85%
CHARLES SCHWAB US REIT SCHH 40.49 2 28.4 4.09%
SPDR DOW JONE GLOBAL REAL ESTATE RWO 47.86 1.31 28.1 2.29%

Although we do not provide charts, we want to illustrate the kind of patterns that are detected by our algorithms. The following charts are of the stocks that were found in a scan conducted on a single day.  The names were omitted from the charts to provide more space for the chart and because the names are not really important. There are all kinds of great setups here. We have drawn a few lines to help you see them, but the algorithm will often report cup and handle formations, new highs, consolidation-surge combinations, or breakouts through resistance. Sometimes there will be a breakout reported, then the stock will test support, and subsequently break out above the high reached just before the stock declined to test support.  The scan picks up other interesting patterns, including the inverted head and shoulders pattern. Most of these patterns can be extremely good vehicles for profit. 

 

You can see many interesting patterns here, all found by our algorithm. The algorithm may select cup and handle formations, new highs, consolidation-surge combinations, or breakouts through resistance.

 

On any given scan date, there may not be any stocks that fit a specific looked-for pattern (even though we scan thousands). Remember that the purpose of a scanner is to save time. To find all the stocks that have had a breakout, for example, would be an overwhelming task without using a search algorithm. However, the scanner cannot find a pattern that does not exist in the market at the time. Another point worth mentioning is that algorithms are mathematical equations. They cannot “see” nuances that are obvious to a human. Two patterns may look the same to a human, but the algorithm may find one and not the other. This can happen because the missed stock falls just outside the parameters of the algorithm. The algorithms have been tested and refined so that they represent a good compromise in the search variables. For example, changing a single variable a little may permit the detection of another attractive stock but allow far too many others through the screen that are not attractive at all. No algorithm is perfect.

Below we had an image that was accidentally deleted from our server, and we have not found a replacement.  It showed a stock that remained in a narrow trading range for 58 days before breaking out. Volume surged on the breakout for two days. The scanner would detect the stock on either of the last two days. The chart also showed the little red arrow pointing at a false breakout in which the closing price was above the highest closing price during the previous 30 trading days. However, the stock would not have appeared on the scanner’s list at that time because the volume did not surge on that day. If volume had surged, it would be an example of a false breakout. False breakouts can happen. If the volume had surged, the scanner would have listed this stock that day.  If we were to change the algorithm so that it requires a greater penetration of the upper boundary, false breakouts would still occur. They can be identified only by hindsight. Think about stop losses for a moment. No matter where you put them, you will still have a few stops triggered just before a rebound. Breakout signals are like that. No matter how you define a breakout, there will occasionally be false signals. Of course, you could require additional filters. For example, on noting the appearance of a stock on our breakout list you could require it to push through the overhead resistance a little further, require that the breakout condition continue for two or more days, or require the satisfaction of some other screening condition before considering it to be a purchase candidate. Another option is that you could wait for a pullback to the breakout level to see if it rebounds off the support and climbs again. All we can do is note that the breakout has occurred. In the missing illustration, no signal was given on the day of the false breakout. On the following day, volume did surge but the stock had already closed lower. The volume surge requirement prevented a false signal. 

Another lost chart showed a stock that had previously been higher, plunged, consolidated, and then had a breakout with an increase in volume.  The algorithm is designed in such a way that it will keep listing a stock that has had a “breakout” until a pullback occurs. Some traders who miss an initial breakout prefer to buy after a pullback and purchase if there is a confirmation of the original breakout. The continued reporting helps such traders remain updated about the stock’s progress. However, as soon as the pullback begins, the stock will cease to be listed in the reports because it will no longer satisfy the breakout filtering conditions looked for by the algorithm. The stock will not appear on the list again until its closing price exceeds the closing high reached before the pullback (confirming that the previous breakout has “legs”).

 

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