Picking a winning trade on a consistent basis is not simply a stroke of luck. It’s the result of calculated screening, planning, and deliberation.
With this in mind, we have started a new weekly series on our top 10 stocks to watch this week — stocks that look poised for a possible breakout in the coming days. Traders should add these stocks to their watchlist now.
The Top 10 Stocks to Watch This Week for Possible Breakouts
| Sl # | Name of the Stock | Stock Ticker | Last Close | Buy Level(s) | Reason |
| 1 | Allegion plc | NYSE: ALLE | $114.51 | $116.00 | Downtrend Channel |
| 2 | The Gap, Inc. | NYSE: GPS | $11.72 | $14.80 | Falling Wedge Pattern |
| 3 | BCB Bancorp, Inc. | NASDAQ: BCBP | $20.26 | $20.40 | Flag Pattern Breakout |
| 4 | Bristol-Myers Squibb Company | NYSE: BMY | $75.75 | $78.00 | Uptrend Channel |
| 5 | Western Digital Corporation | NASDAQ: WDC | $49.46 | $52.00 | Falling Wedge Pattern Breakout |
| 6 | Change Healthcare Inc. | NASDAQ: CHNG | $23.65 | $23.80 | Ascending Triangle Pattern Breakout |
| 7 | Brinker International, Inc. | NYSE: EAT | $38.61 | $41.40 | Symmetrical Triangle Pattern |
| 8 | KemPharm, Inc. | NASDAQ: KMPH | $4.73 | $5.00 | Falling Wedge Pattern |
| 9 | Establishment Labs Holdings Inc. | NASDAQ: ESTA | $81.89 | $85.00 | Symmetrical Triangle Pattern Breakout |
| 10 | WestRock Company | NYSE: WRK | $50.42 | $52.70 | Downtrend Channel Breakout |
Important: Typically, these trades offer a risk: reward ratio of 1:2 or 1:3 in the next 6 months, which implies 2x to 3x rewards when compared to risks. So, be sure to set your stop-loss levels and target prices accordingly to manage your risk. In addition, these trade ideas are triggered using daily closing prices, not intra-day pricing. So, if you participate in these trades, make sure that you only buy the stock once its daily close is above the recommended price level.
That said, here are the top 10 stocks to watch for a breakout, in no particular order.
#1 Allegion plc (NYSE: ALLE)
Sector: Industrials | Security & Protection Services
Reason: Formation of a Downtrend Channel
A downtrend or descending channel is the price action contained between downward sloping parallel lines. It is formed by two lines that are drawn by connecting the lower highs and lower lows of a stock’s price. Even though this is typically a bearish pattern, a breakout from the upper rail of this pattern is considered a good bullish indication.
Buy Level(s): The daily chart shows that the stock is currently forming a downtrend channel. The ideal buy level for ALLE is if the stock breaks out of the downtrend channel and has a daily close above $116.00. This is marked in the chart below as a green color dotted line.
Daily chart – ALLE
ALLE – Downtrend Channel
#2 The Gap, Inc. (NYSE: GPS)
Sector: Consumer Cyclical | Apparel Retail
Reason: Formation of a Falling Wedge Pattern
A falling wedge pattern is formed by joining two downward-sloping, converging trendlines having a contracting range. The pattern appears to be wide at the top and continues to contract as prices fall. A breakout from a falling wedge pattern can indicate either reversal or continuation depending on where the pattern appeared in the trend.
A stock that has broken out of a falling wedge pattern would have gained momentum and would have the potential to move higher.
Buy Level(s): The ideal buy level for GPS is if the stock breaks out of the falling wedge pattern, at a price of around $14.80. This is marked in the chart below as a green color dotted line.
Daily chart – GPS
GPS – Falling Wedge Pattern
#3 BCB Bancorp, Inc. (NASDAQ: BCBP)
Sector: Financial | Banks – Regional
Reason: Breakout From a Flag Pattern
A flag pattern is a short-term continuation pattern that marks a small consolidation before the previous move resumes. The pattern is formed when the market consolidates in a narrow range after a sharp move. For a stock in an uptrend, a breakout from this pattern is typically a strong bullish indication.
Buy Level(s): Although the stock has currently broken out of the flag pattern, the ideal buy level for BCBP is above the near-term resistance level of $20.40. This is marked in the chart below as a green color dotted line.
Daily chart – BCBP
BCBP – Flag Pattern Breakout
#4 Bristol-Myers Squibb Company (NYSE: BMY)
Sector: Healthcare | Drug Manufacturers – General
Reason: Formation of an Uptrend Channel
An uptrend channel or an ascending channel is the price action contained between upward sloping parallel lines. It is formed by a lower trend line that connects the swing lows, and an upper channel line that joins the swing highs. A stock usually trades between the two rails of the uptrend channel before finally breaking out from the upper rail.
Buy Level(s): The ideal buy level for BMY is if the stock breaks out of the uptrend channel and has a daily close above $78.00. This is marked in the chart below as a green color dotted line.
Daily chart – BMY
BMY – Uptrend Channel
#5 Western Digital Corporation (NASDAQ: WDC)
Sector: Technology | Computer Hardware
Reason: Falling Wedge Pattern Breakout
A falling wedge pattern is formed by joining two downward-sloping, converging trendlines having a contracting range. The pattern appears to be wide at the top and continues to contract as prices fall. A breakout from a falling wedge pattern can indicate either reversal or continuation depending on where the pattern appeared in the trend.
A stock that has broken out of a falling wedge pattern would have gained momentum and would have the potential to move higher.
Buy Level(s): The stock has currently broken out of a falling wedge pattern. However, the ideal buy level for WDC is above the nearest resistance level of $52.00. This is marked in the chart below as a green color dotted line.
Daily chart – WDC
WDC – Falling Wedge Pattern Breakout
#6 Change Healthcare Inc. (NASDAQ: CHNG)
Sector: Healthcare | Health Information Services
Reason: Breakout From an Ascending Triangle Pattern
An ascending triangle pattern is a bullish pattern formed by drawing a horizontal line along the swing highs, and a rising trendline along the swing lows. These two lines result in the formation of a triangle. A breakout from this pattern is typically a strong bullish indication.
Buy Level(s): Although the stock has broken out of the ascending triangle pattern, the ideal buy level for CHNG is if the stock has a daily close above the near-term resistance level of $23.80. This is marked in the chart below as a green color dotted line.
Daily chart – CHNG
CHNG – Ascending Triangle Pattern Breakout
#7 Brinker International, Inc. (NYSE: EAT)
Sector: Consumer Cyclical | Restaurants
Reason: Formation of a Symmetrical Triangle Pattern
A symmetrical triangle is a chart pattern formed by two converging trend lines connecting a series of sequential peaks and troughs. These two lines result in the formation of a triangle that appears to be symmetrical.
A symmetrical triangle pattern is usually formed when there is an indecision in the price movements and there is uncertainty among the buyers and sellers. This chart pattern represents a period of consolidation before the price breaks out or breaks down. In case a breakout occurs from the upper trend line, it is a strong bullish indication as it signifies the start of a new bullish trend.
Buy Level(s): The ideal buy level for EAT is if the stock has a daily close above the breakout level of the symmetrical triangle pattern, at around $41.40. This is marked in the chart below as a green color dotted line.
Daily chart – EAT
EAT – Symmetrical Triangle Pattern
#8 KemPharm, Inc. (NASDAQ: KMPH)
Sector: Healthcare | Biotechnology
Reason: Formation of a Falling Wedge Pattern
A falling wedge pattern is formed by joining two downward-sloping, converging trendlines having a contracting range. The pattern appears to be wide at the top and continues to contract as prices fall. A breakout from a falling wedge pattern can indicate either reversal or continuation depending on where the pattern appeared in the trend.
A stock that has broken out of a falling wedge pattern would have gained momentum and would have the potential to move higher.
Buy Level(s): The ideal buy level for KMPH is if the stock breaks out of the falling wedge pattern, at a price of around $5.00. This is marked in the chart below as a green color dotted line.
Daily chart – KMPH
KMPH – Falling Wedge Pattern
#9 Establishment Labs Holdings Inc. (NASDAQ: ESTA)
Sector: Healthcare | Medical Devices
Reason: Symmetrical Triangle Pattern Breakout
A symmetrical triangle is a chart pattern formed by two converging trend lines connecting a series of sequential peaks and troughs. These two lines result in the formation of a triangle that appears to be symmetrical.
A symmetrical triangle pattern is usually formed when there is an indecision in the price movements and there is uncertainty among the buyers and sellers. This chart pattern represents a period of consolidation before the price breaks out or breaks down. In case a breakout occurs from the upper trend line, it is a strong bullish indication as it signifies the start of a new bullish trend.
Buy Level(s): The stock has currently broken out of a symmetrical triangle pattern. However, the ideal buy level for ESTA is if the stock closes above the immediate resistance level of $85.00. This is marked in the chart below as a green color dotted line.
Daily chart – ESTA
ESTA – Symmetrical Triangle Pattern Breakout
#10 WestRock Company (NYSE: WRK)
Sector: Consumer Cyclical | Packaging & Containers
Reason: Downtrend Channel Breakout
A downtrend or descending channel is the price action contained between downward sloping parallel lines. It is formed by two lines that are drawn by connecting the lower highs and lower lows of a stock’s price. Even though this is typically a bearish pattern, a breakout from the upper rail of this pattern is considered a good bullish indication.
Buy Level(s): The daily chart shows that the stock has currently broken out of a downtrend channel. However, there is a near-term resistance level for the stock. Hence, the ideal buy level for WRK is if the stock has a daily close above $52.70. This is marked in the chart below as a green color dotted line.
Daily chart – WRK
WRK – Downtrend Channel Breakout
Happy Trading!
Trades of The Day Research Team
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Source: Trades of the Day