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.)

watch for a breakout for STAR

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 โ€” high at $37.72 and low at $35.48 โ€” may provide some forewarning on the breakout direction of the larger range. (For more, see: Four Stocks For Range Traders.)

VOYA choppy range

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 โ€” 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.)

JD uptrend

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.

NLY consolidating

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.

Related Articles
  1. Chart Advisor

    These Stocks Are Close to Triangle Breakouts

    These stocks have seen compressed price action recently in the form of a triangle, and are nearing, or at, breakout levels.
  2. Chart Advisor

    Recent Flag Pattern Breakouts

    A flag is a small continuation pattern, and these four stocks recently broke out of one, or are close to it.
  3. Chart Advisor

    Four Breakout Stocks To Watch

    These biotechnology and pharmaceutical stocks continue to put in new highs, but indicators are diverging.
  4. Chart Advisor

    Triangle Breakouts: Two Higher, Two Lower

    These stocks are very close to breaking out of triangle formations, indicating a strong price move is near.
  5. Chart Advisor

    ChartAdvisor for November 27 2015

    Weekly technical summary of the major U.S. indexes.
  6. Chart Advisor

    Pay Attention To These Stock Patterns Playing Out

    The stocks are all moving different types of patterns. A breakout could signal a major price move in the trending direction, or it could reverse the trend.
  7. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  8. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  9. Investing News

    Silicon Valley Startups Fly into Space

    Space enthusiasts are in for an exciting time as Silicon Valley startups take on the lucrative but expensive final frontier.
  10. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  1. What can working capital be used for?

    Working capital is used to cover all of a company's short-term expenses, including inventory, payments on short-term debt ... Read Full Answer >>
  2. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  3. Should I sell my shares if a company suspends its dividend?

    Since 2008, when the Federal Reserve slashed interest rates to zero and then kept them there indefinitely, dividend-paying ... Read Full Answer >>
  4. Do you include working capital in net present value (NPV)?

    Working capital is included in calculating the net present value (NPV) of a company. NPV is the difference between the present ... Read Full Answer >>
  5. Does working capital include marketable securities?

    Marketable securities represent highly liquid investments that are considered to be current assets and, therefore, are included ... Read Full Answer >>
  6. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>

You May Also Like

Trading Center