Lots of traders watch for breakouts, but they can be a tricky trade since multiple false attempts are common before the actual breakout occurs. Another strategy is to let the breakout occur if it is strong and the price stays above the breakout level for a number of days, then wait for the price to pullback to the breakout point before initiating trade. The main problem with this is the pullback to the breakout area doesn't always occur. But if the prior resistance level was well established and there was a strong breakout, if the price does pullback, it is a low-risk-high-probability trade.

Sensata Technologies (NYSE:ST) had a well defined resistance level, as the price reached $41.09 and $41.13 on moves higher in October and February. In March the stock had a false breakout, moving above the prior resistance but quickly falling back below. On March 17 the price surged again, this time causing a significant break of the area. Pullbacks to $41.60 to $41.15 now provide "second chance" entries. Stops can be placed just below $41 (or a bit lower to provide a touch more room). Target is $43.30 to $43.50, or implement a trailing stop.

Sensata Technologies (NYSE:ST) had a well defined resistance level, as the price reached $41.09 and $41.13 on moves higher in October and February.

Carpenter Technology (NYSE:CRS) had well defined resistance just below $63, which was aggressively broken on March 19. Pullbacks between $64 and $63 present second chance buying opportunities. Place a stop below $62.50 with a target above the recent high (currently $66.54). Instead of a target, consider a trailing stop, where the stop is progressively moved up to just below swing lows as the price begins to move higher again.

Carpenter Technology (NYSE:CRS) had well defined resistance just below $63, which was aggressively broken on March 19.

Mine Safety Appliances (NYSE:MSA) has formed well defined resistance between $55 and $54.55. This area was definitively broken on March 19, and the price has continued to move higher. A pullback between $55.50 and $54.50 provides a second chance entry, with a stop below $54. Target is above $57.50, or just above the price high prior to entry. The target based on the range height is between $60 and $61. 

Mine Safety Appliances (NYSE:MSA) has formed well defined resistance between $55 and $$54.55.

Valley National Bancorp (NYSE:VLY) is still in indecision mode. Resistance near $10.30 was broken but then the price retreated. On March 21 the price managed to reach $10.50 but still hasn't significantly cleared the resistance area which now extends from $10.30 to $10.50. If the price moves well beyond $10.50--to at least $10.70--then a pullback to the $10.50 to $10.30 provides a second chance breakout opportunity with a target beyond $10.70 and a stop just below $10.20. This is a unique case though. There is additional resistance near $10.70, so a move beyond that could signal a longer-term up move. On the other hand, potential resistance up to $10.73, and lack of definitive upside breaks makes this stock less compelling than the prior three trades (should they materialize).

Valley National Bancorp (NYSE:VLY) is still in indecision mode.

The Bottom Line

Second chance breakouts are missed by many traders. They can be messy, but if a second chance opportunity develops, it is pretty clear cut. The old resistance area should now act as support, so risk is kept small by placing a stop just below the old resistance (new support) level. An upside target can be used, or a trailing stop implemented to capture longer-term gains which may arise following a breakout.

Charts provided by Stockcharts.com

 

Disclosure - At the time of writing, the author did not own shares of any company mentioned.

Related Articles
  1. Chart Advisor

    ChartAdvisor for March 21 2014

    A technical summary of the major U.S. indices.
  2. Chart Advisor

    ChartAdvisor for March 13 2014

    Summary of the major U.S. indices.
  3. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  4. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  5. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  6. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  7. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  8. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  9. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  10. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
RELATED FAQS
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  5. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  6. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center