The Federal Reserve recently trimmed interest rates by a quarter percentage point but surprised market participants by hinting at no further immediate cuts. The hawkish Fed outlook caused stock market gyrations, but an expected Santa Rally, along with Donald Trump’s promise of tax cuts and tariffs, could aid the market to bounce back and scale upward in the New Year.
Banking on such positives, savvy investors should place their bets on breakout stocks that can benefit from the stock market’s overall market uptrend.
To pick breakout stocks, investors should zero in on stocks whose prices vary within a narrow band. If the stock price falls below this channel, it could be the best time to sell it off. However, the best time to buy a stock per this strategy is when it is about to break above this trading band. Such stocks offer the prospect of striking gains.
To that end, Kingstone Companies, Inc. KINS, Sky Harbour Group Corporation SKYH and Grid Dynamics Holdings, Inc. GDYN have been selected as the breakout stocks for today.
To select the right breakout stock, one has to first calculate its support and resistance level. A support level is the lower bound for stock movements, while a resistance level refers to the maximum price it trades within a considerable period.
In other words, the demand for a stock is at its lowest at its support level, which means that most traders are willing to sell it. At the resistance level, most traders are willing to go long on the stock, meaning they would like to add it to their portfolio.
The primary risk associated with such a strategy is that the decision to buy an apparent breakout candidate has been incorrectly timed. When a stock moves above the resistance level, it should be a highly prized commodity for traders. However, whether such a breakout is genuine is another matter altogether.
For a bona fide breakout, the stock’s earlier resistance barrier should become its new support level. This only happens if the trading channel that has been established is tested by observing long-term price trends. The strength of the support and resistance levels can be ascertained only through such a study. Despite the risk of misidentification, correctly identifying such stocks can yield considerable returns, even at a price that may not seem attractive at first glance.
• Percentage price change over four weeks between 10% and 20% (Stocks showing considerable price increases but whose gains are not excessive.)
• Current Price /52-Week High greater than or equal to 0.9 (Stocks trading 90% close to their 52-week highs.)
• Zacks Rank less than or equal to #2 (Only Strong Buy and Buy rated stocks can get through.)
No matter whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.
• Beta for 60 months less than or equal to 2
(Stocks that move more than the broader market but within a reasonable limit.)
• Current price less than or equal to $20 (Stocks reasonably priced.)
These criteria narrow the universe of more than 6,853 stocks to only 12. Here are the top three stocks:
Kingstone Companies offers property and casualty insurance to individuals in the U.S. Kingstone Companies has an expected earnings growth rate of 10.7% for next year. KINS currently has a Zacks Rank #1.
Sky Harbour Group develops aviation infrastructure in the United States. Sky Harbour Group has an expected earnings growth rate of 77.5% for next year. SKYH currently has a Zacks Rank #2.
Grid Dynamics offers technology consulting, engineering and analytics services. Grid Dynamics has an expected earnings growth rate of 29.4% for the next year. GDYN currently has a Zacks Rank #1.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
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