For investors using a technical breakout method, the focus is on spotting stocks that are in a solid, clear uptrend and are also taking a pause to trade in a narrow range. This pause, or "setup," forms a possible base for the next upward move. The method relies on two specific scores from ChartMill: the Technical Rating, which measures the general condition and trend force of a stock, and the Setup Quality Rating, which judges how narrowly a stock is moving and if a distinct entry and exit point is present. By selecting for stocks with good scores in both areas, traders try to locate likely chances where a stock with good technicals is tightening before a breakout.
STMicroelectronics NV (NYSE:STM) appears as a leading example from such a search, now showing a notable technical picture. The stock's recent activity matches closely with the requirements looked for by breakout investors, giving a mix of solid base strength and a specific price pattern that indicates a possible move is near.
Strong Technical Base
The foundation of any breakout trade is a stock with clear momentum and trend force. STM does very well here, getting a top Technical Rating of 10 from ChartMill. This highest score shows the stock is a leader from a technical view. The detailed technical report notes several main points backing this rating:
- Positive Trends Across Timeframes: Both the short and long-term trends for STM are marked as positive. This agreement shows continued buying and lowers the chance of a contrary trend change.
- Good Relative Performance: The stock is doing better than 86% of the whole market over the last year, showing clear relative force. This is an important feature for breakout picks, as it shows the stock is already wanted and leading the wider market.
- Price Above Key Averages: STM is priced above all its main simple moving averages (20, 50, 100, and 200-day), and each average is rising. This layered stack of support levels is a standard feature of a good uptrend.
- Supportive Volume: Recent trading has seen volume jump much higher than the 50-day average, a signal of large-scale buying that often comes before or with a strong price rise.
This very good technical setting is exactly what the breakout method looks for first. A high Technical Rating answers the question of which stock to review, selecting for those with the greatest chance of keeping their upward path.
Clear Setup Pattern
While a solid trend is needed, it is not enough for a best entry. Buying a stock that just jumped can lead to quick declines. The method needs a "setup," a time of pause where the stock absorbs its gains and gathers force for its next move. STM now shows this activity, seen in its high Setup Quality Rating of 9.
The pause is clear in the stock's recent price movement, which has made a specific range. This creates plain reference points for traders:
- Specific Resistance: A resistance area is seen between $30.17 and $30.54. A clear move above this area, especially above $30.55, could mark the start of the next rising phase and act as a possible trigger for entry.
- Nearby Support: Below the current price, a firm support area exists between $27.89 and $28.96. This zone, made by a meeting of trendlines and moving averages, gives a sensible level to set a protective stop-loss order, outlining and capping the trade's risk.
- Narrowing Action: The high Setup Rating shows that price movement has been getting smaller and prices have been moving in a fairly tight space, which often comes before a price expansion (a breakout).
This setup quality directly handles the when to buy, giving a planned approach. It lets an investor wait for confirmation (a breakout above resistance) while having a preset point of failure (a break below support) to control risk.
Trade Plan and Market Setting
From this review, a sample trade plan can be made. An entry might be thought about on a breakout above the resistance at $30.55, with a stop-loss set below the support area at $27.88. This would set a risk of about 8.7% on the trade itself. It is key to see this is a shown example; investors should always adjust position size and stop levels to their own risk comfort.
The wider market setting is also helpful. While the S&P 500's long-term trend is neutral, its short-term trend is positive. This generally good environment can give a helpful push for individual stock breakouts, though STM's solid separate relative force suggests its path is not only linked to the index.
Locating Like Chances
STM shows the kind of chance the Technical Breakout screen is made to find each day. For investors wanting to see a new list of stocks showing both high technical ratings and clear setup patterns, the screen is updated often. You can see the present results and look for other possible breakout picks by going to the Technical Breakout Setups screen.
Disclaimer: This article is for information only and is not investment advice, a suggestion, or an offer or request to buy or sell any securities. The review shown is based on technical measures and past data, which are not promises of future results. All trading and investment choices have risk, and people should do their own study and talk with a qualified financial advisor before making any investment choices. The sample trade plan is made by the system and for show only.
