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 | Envestnet, Inc. | NYSE: ENV | $85.62 | $88.00 | Consolidation Area |
| 2 | Cardtronics plc | NASDAQ: CATM | $41.08 | $45.00 | Double Bottom Pattern Breakout |
| 3 | Medallia, Inc. | NYSE: MDLA | $35.54 | $36.50 | Symmetrical Triangle Pattern Breakout, Uptrend Channel |
| 4 | The Goodyear Tire & Rubber Company | NASDAQ: GT | $11.46 | $11.70 | Ascending Triangle Pattern |
| 5 | At Home Group Inc. | NYSE: HOME | $19.18 | $24.60 | Flag Pattern |
| 6 | Grubhub Inc. | NYSE: GRUB | $82.44 | $87.30 | Inverted Head and Shoulders Pattern |
| 7 | Alibaba Group Holding Limited | NYSE: BABA | $236.19 | $250.00 | Downtrend Channel |
| 8 | First Industrial Realty Trust, Inc. | NYSE: FR | $41.70 | $44.30 | Ascending Triangle Pattern |
| 9 | CyrusOne Inc. | NASDAQ: CONE | $69.38 | $76.40 | Falling Wedge Pattern |
| 10 | Equity LifeStyle Properties, Inc. | NYSE: ELS | $61.06 | $64.30 | Falling Wedge Pattern |
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 Envestnet, Inc. (NYSE: ENV)
Sector: Technology | Software – Application
Reason: Formation of a Consolidation Area in the Daily Chart
A Consolidation Area is a price action contained between two parallel lines. It is formed by a lower line that connects the lows, and an upper line that joins the highs. A stock usually trades between the two lines of the consolidation area before finally breaking out from the upper rail.
Buy Level(s): The ideal buy level for ENV is if the stock breaks out of the consolidation area and closes above the near-term resistance level of $88.00. This is marked in the chart below as a green color dotted line.
Daily chart – ENV
ENV – Consolidation Area
#2 Cardtronics plc (NASDAQ: CATM)
Sector: Industrials | Business Equipment & Supplies
Reason: Breakout from a Double Bottom Pattern
A Double Bottom Pattern looks like the letter W and is characterized by two well-defined lows at approximately the same price level. This twice-touched low is usually a very strong support level. The high point between the two bottoms’ resistance level is called the neckline. Once a breakout happens from this key price level (neckline), it signifies the start of a bullish move.
Buy Level(s): Even though the stock has currently broken out of a double bottom pattern, the ideal buy level for CATM is above the nearest resistance level of $45.00. This is marked in the chart below as a green color dotted line.
Daily chart – CATM
CATM – Double Bottom Pattern Breakout
#3 Medallia, Inc. (NYSE: MDLA)
Sector: Technology | Software – Application
Reason: Breakout from a Symmetrical Triangle Pattern, Formation of an Uptrend Channel
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.
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 The daily chart shows that the stock has currently broken out of a symmetrical triangle pattern and is trading within an uptrend channel. The ideal buy level for MDLA is if the stock breaks out of this uptrend channel and has a daily close above the $36.50. This is marked in the chart below as a green color dotted line.
Daily chart – MDLA
MDLA – Symmetrical Triangle Pattern Breakout, Uptrend Channel
#4 The Goodyear Tire & Rubber Company (NASDAQ: GT)
Sector: Consumer Cyclical | Auto Parts
Reason: Formation of 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): The ideal buy level for GT is if the stock has a daily close above the breakout level of the ascending triangle pattern, and closes above the price of around $11.70. This is marked in the chart below as a green color dotted line.
Daily chart – GT
GT – Ascending Triangle Pattern
#5 At Home Group Inc. (NYSE: HOME)
Sector: Consumer Cyclical | Specialty Retail
Reason: Formation of a Flag Pattern
A flag pattern is a short-term continuation pattern that mark 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): The ideal buy level for HOME is if the stock has a daily close above the breakout level of the flag pattern and closes above the near-term resistance level. This translates to a price of around $24.60. This is marked in the chart below as a green color dotted line.
Daily chart – HOME
HOME – Flag Pattern
#6 Grubhub Inc. (NYSE: GRUB)
Sector: Communication Services | Internet Content & Information
Reason: Formation of an Inverted Head and Shoulders (IH&S) Pattern
An inverse head and shoulders pattern signify the reversal of a downward trend. The pattern is formed when the price falls to a trough and then rises; then falls below the former trough and then rises again; and finally, the price falls again but not as far as the second trough and then rises again. The neckline of this pattern would be the resistance found near the top of the previous troughs. Once a breakout from this pattern occurs, it signifies a bullish trend.
Buy Level(s): The ideal buy level for GRUB is if the stock has a daily close above the breakout level of the IH&S pattern (in the weekly chart), at around $87.30. This is marked in the chart below as a green color dotted line.
Daily chart – GRUB
GRUB – Inverted Head and Shoulders Pattern
#7 Alibaba Group Holding Limited (NYSE: BABA)
Sector: Consumer Cyclical | Internet Retail
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 as a good bullish indication.
Buy Level(s): The ideal buy level for BABA is if the stock has a daily close above the breakout level of the downtrend channel and closes above the immediate resistance area. This translates to a price of around $250.00. This is marked in the chart below as a green color dotted line.
Daily chart – BABA
BABA – Downtrend Channel
#8 First Industrial Realty Trust, Inc. (NYSE: FR)
Sector: Real Estate | REIT – Industrial
Reason: Formation of 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): The ideal buy level for FR is if the stock has a daily close above the breakout level of the ascending triangle pattern, at around $44.30. This is marked in the chart below as a green color dotted line.
Daily chart – FR
FR – Ascending Triangle Pattern
#9 CyrusOne Inc. (NASDAQ:CONE)
Sector: Real Estate | REIT – Specialty
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 CONE is if the stock has a daily close above the breakout level of the falling wedge pattern and closes above the near-term resistance area, at around $76.40. This is marked in the chart below as a green color dotted line.
Daily chart – CONE
CONE – Falling Wedge Pattern
#10 Equity LifeStyle Properties, Inc. (NYSE: ELS)
Sector: Real Estate | REIT – Residential
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 ELS is if the stock has a daily close above the breakout level of the falling wedge pattern and closes above the near-term resistance area, at around $64.30. This is marked in the chart below as a green color dotted line.
Daily chart – ELS
ELS – Falling Wedge Pattern
Happy Trading!
Trades of The Day Research Team
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