The longer a consolidation lasts the more potential there is for a big move when the range does finally break. A very strong price move followed by a consolidation will also typically lead to another strong move once the consolidation is broken. Here are four stocks which await breaks and big potential moves...either up or down.
iStar Financial Inc. (STAR) has been locked between $13.79 and $15.19 since late April. The overall trend is up so the anticipated breakout direction is higher, but that shouldn't be assumed. Watch for a breakout of at least $0.05 above or below the range high or low to signal a break and the start of a larger move. The upside breakout should carry the price beyond the 52-week high at $15.91, into a target area of $16.20 to $16.40. A downside breakout has a target between $12.70 and $12.50, and potentially lower a longer-term downtrend could be underway. (For more, see: Range-Bound Traders, Breakout Traders and Channel Traders.)
Voya Financial, Inc. (VOYA) has been moving in a choppy range going back to November, but since June that range has been even narrower. The overall trend is up, so the expectation is for a break higher, but once again it doesn't need to be assumed. The price will breakout eventually and indicate the path of least resistance. $32.60 is the low of the range and $37.75 the high. A break higher provides a target of $42.75 while a break lower could target $27.60. A breakout of the small range since June — high at $37.72 and low at $35.48 — may provide some forewarning on the breakout direction of the larger range. (For more, see: Four Stocks For Range Traders.)
JD.Com, Inc. (JD) debuted in late May and moved strongly to the upside. Since July its price has been consolidating and traders will be watching for a breakout of the consolidation. This consolidation is more of a triangle shape, so a move above $30 indicates a likely upside breakout. If this occurs the target is $36. Breakout levels to the downside are $27.50, but another version of the triangle puts support at $26 — either of these can be used but only the drop below $26 indicates a larger move targeting $20 is likely underway. (For more, see: These Stocks Are Close To Triangle Breakouts.)
Annaly Capital Management Inc. (NLY) is a REIT consolidating below the 2014 high at $11.86. The trend this year has been predominantly up, but over the longer-term the trend is down. A move above the July high at $11.52 is a good sign the price could retest the $11.86 high, and if exceeded, could lead to a strong pop in the price toward the $12.50 area. On the other hand, a drop back below $11 indicates short-term pressure which could push the price lower. Of note is that the REIT has a 10.4% dividend yield, making it a worthwhile investment especially if the price breaks higher.
The Bottom Line
Breakouts are something a lot of traders watch for, which can make them fairly difficult to trade. False breakouts are a reality when trading consolidation and range breakouts. Either trade a breakout and stick with it, placing a stop-loss a safe distance away, or actively trade the breakouts keeping risk very small on each trade but committing yourself to be in the move when a legitimate breakout does occur. One approach is more passive and the other more active. Define your strategy before placing trades, and keep risk on each trade limited to a only a small percentage of your overall account capital. (For more, see: Capitalize On False Breakouts In The Danger Zone.)
Cory Mitchell does not own interests in any of the securities mentioned in this article.