Stock analysis

These Stocks Are Near a Major Breakout

With the S&P 500 pushing to a new high on Sept. 12, eclipsing the Aug. 8 high, a large number of stocks are doing so as well. The following two stocks have been stuck below a resistance level for several months but are now breaking above that level or are very close. An upside breakout signals another wave to the upside in the long-term uptrend.

Jabil Inc. (JBL) stock is up more than 80% since last May, when it bottomed at $16.78. Over the course of the rally, the price has had several sharp rises, followed by extended periods of sideways movement and then another rally. With the trend up, traders will be watching for a breakout above the current triangle pattern, which has been in place since May. (See also: Hot Tech Stocks Breaking Higher.)

The June high was $31.70. A breakout above that level would help signal that another advance is under way. The height of the triangle, $3.87, can be added to the breakout point for estimated profit target of $35.57. If the breakout occurs and an entry is taken at the breakout point, a stop-loss order can be placed below the triangle near $29.50. The trade provides risk of $2.20 per share in exchange for $3.87 of profit potential. The risk/reward could be improved by placing a stop-loss below the most recent low of $30.13 (if the price breaks above $31.70).

CME Group Inc. (CME) shares just broke out of a triangle pattern. The stock was stuck below $128 after first testing that area in March. In September, the price has finally broken through, closing the day at $130.06 on Sept. 12. A stop-loss can be placed below $123, just below the lower trendline​ of the triangle. If entering near $128, that puts $5 per share at risk. Based on the triangle’s height of $13.14, the estimated upside target is $141.14. (For more, see: CME Sees Dollars in Data Sales, but Struggles to Grow.)

An entry point closer to $128, the breakout point, is preferred, as that provides the best risk/reward ratio. Taking a trade up near $130 affects to the risk/reward quite a bit, upping the risk to $7 per share and reducing the profit potential to $11.14. There is still more profit potential than risk, but the lower entry provides a much more attractive trade. To improve the risk/reward slightly or to allow for a slightly higher entry price, a stop-loss could also be placed below the most recent swing low of $124.51.

The Bottom Line

These stocks have been stuck below a resistance level for the past several months. CME Group has already broken out, but a slight pullback would provide an opportunity to buy near the breakout point with an attractive risk/reward. JBL has not yet broken out, but the price is right near the top of the triangle pattern. Traders will be watching for a breakout from that setup, which would also provide a favorable risk/reward. Losing trades occur, so traders should risk only a small percentage of account capital on any single trade. (For additional reading, check out: The Anatomy of Trading Breakouts.)

Charts courtesy of Disclosure: The author does not have positions in the stocks mentioned.