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 — 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.)

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 — 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. Investing

    Soul Cycle vs. Planet Fitness

    How has the fitness industry's shift from multipurpose health clubs to specialized studios and budget gyms played out for SoulCycle and Planet Fitness?
  6. Investing Basics

    Learn How to Trade Semiconductor Stocks in 4 Steps

    The enormously diverse semiconductor industry requires market players looking for exposure have specialized knowledge.
  7. Investing

    Decoding the Merger of Alcatel-Lucent and Nokia

    Alcatel-Lucent and Nokia have a history of difficult mergers. But, their merger with each other may turn out to be the right fit for both companies.
  8. Investing

    Is GE One of the Best Dividend Stocks

    General Electric has a strong dividend history, but does it possess the three characteristics of one of the best dividend stocks?
  9. Stock Analysis

    The Biggest Oil Producers in Asia

    Learn which Asian countries deliver the most crude oil to market, and discover what companies are the biggest producers in each country.
  10. Stock Analysis

    The 5 Biggest Russian Oil Companies

    Discover the top Russian oil companies by production volume and find out more about their domestic and international business operations.
  1. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  2. How do mutual funds split?

    Mutual funds split in the same way that individual stocks split, but less often. Like a stock split, mutual fund splits do ... Read Full Answer >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!