Technical breakout setups are a common strategy for traders aiming to profit from stocks displaying solid momentum and consolidation patterns. The method uses two main metrics: the ChartMill Technical Rating, which measures a stock’s overall trend strength, and the ChartMill Setup Quality Rating, which spots whether the stock is forming a good consolidation pattern for a possible breakout. Stocks with high scores in both areas often offer appealing risk-reward scenarios.
FLOWSERVE CORP (NYSE:FLS) is currently a notable example, with a Technical Rating of 9 and a Setup Rating of 10, signaling both strong trend performance and a well-formed consolidation pattern.
Technical Strength: A Solid Uptrend
The ChartMill Technical Rating checks several factors, such as relative strength, moving averages, and trend consistency. FLS scores well because of the following:
- Positive Trend Alignment: Both short-term and long-term trends are upward, supporting the stock’s momentum.
- High Relative Strength: Over the past year, FLS has beaten 73% of all stocks, showing consistent market strength.
- Moving Average Support: The stock is above key moving averages (20-day, 50-day, 100-day, and 200-day), with all averages moving higher, a positive sign.
- Bull Flag Pattern: The recent pullback after a strong rise hints at a possible continuation pattern, often viewed as a chance to enter before another upward move.
These elements fit the main idea of breakout trading: finding stocks with clear uptrends that are more likely to keep rising.
Setup Quality: Tight Consolidation with Clear Risk Levels
The Setup Rating checks if a stock is forming a tradable base. FLS scores a perfect 10, meaning it has an ideal setup for breakout traders:
- Lower Volatility: The stock has been moving in a narrow range, reducing volatility, which often comes before a breakout.
- Support and Resistance Zones:
- Support is clear between $53.61,$54.21, offering a logical stop-loss point.
- Resistance is near $55.29,$55.30, with a move above this area possibly leading to more gains.
- Institutional Interest: Large investors have shown recent buying activity, as seen in the Effective Volume indicator.
- Pocket Pivot Signal: A recent bullish volume pattern points to underlying buying pressure.
This mix of factors suggests FLS is in a "coiling" phase, where a breakout above resistance could lead to a significant upward move.
Trade Considerations
The technical report highlights a possible trade setup:
- Entry: A buy-stop order above resistance at $55.31.
- Stop-loss: Below support at $53.60, capping risk at ~3.1%.
- Portfolio Allocation: Suggested exposure of 25% of capital for a 0.77% total portfolio risk.
While the setup looks promising, traders should:
- Watch broader market conditions (the S&P 500 is in an upward trend, which helps bullish setups).
- Be mindful of earnings or sector-specific news that could affect the pattern.
- Adjust stop levels based on personal risk tolerance.
Finding More Breakout Opportunities
For traders looking for other high-quality breakout candidates, the Technical Breakout Setups screen updates daily with stocks showing strong technicals and consolidation patterns.
Disclaimer: This analysis is not investment advice. Always do your own research and use risk management strategies before trading.
