These stocks have been bouncing between support and resistance recently and could be due for a breakout. A breakout occurs when the price moves outside of a pattern it has been trading in, indicating a more sustained price move in that breakout direction. An alternative to trading the breakout—which is prone to false breakouts—is to take a trade in the trending direction while the price is bouncing between support and resistance. Both these methods are discussed below.
Broadcom Ltd. (AVGO) is in a long-term uptrend but has been moving sideways since August. The August high is $179.42, which was followed by a pullback to $158.75 in September. Since then, the price has moved within those two extremes, ranging between $178.02 and $160.62. Monitor for a breakout above $179.42 (a rally above $178.02 could foreshadow that) or below $158.75. This price area is $20.67 in height ($179.42 – $158.75) which provides an indication of how far the price could move after it breaks out. Targets can be placed near $200 in the event of an upside breakout, or $138 in the case of a downside breakout. For those that are bullish, and believe the uptrend will continue (eventual breakout to the upside), consider purchasing between $164 and $158.75, with a stop loss below $158.50.
Enbridge Inc. (ENB) bottomed in January at $27.43 and then had a strong surge higher in April. Since then the stock has moved largely sideways, but did make a new 2016 high at $45.77 in September. Watch the triangle pattern that has been forming since July. If the price moves above triangle resistance at $43.50 or below triangle support at $39.90, the stock could be in for a more substantial trending move. The triangle is about $7 in height. Added to the upside breakout point, this provides an approximate target of $50.50 ($43.50 + $7). If a downside breakout develops, the estimated target is $32.90. The strong rally early in the year indicates the stock is likely now in a longer-term uptrend. For those that are bullish, and believe the uptrend will continue, consider purchases near support in the $41 to $40 region. Stop loss orders can be placed below $39, or below $38.58 (the July low) to give the trade a bit more room to move.
MPLX LP (MPLX) is another pipeline stock, like Enbridge, and it too rallied early in the year and then flat lined since April. Watch for a breakout above the $35.32 November high, or below the $30.09 October low. When a breakout occurs, at least a $5 move is expected with the potential for much more. That puts a conservative target near $40.50 on an upside breakout or $25 on a downside breakout. A more aggressive, but realistic, longer-term upside target is near $50. For those who are long-term bullish, consider a purchase near support in the $30.75 to $30 region instead of waiting for the upside breakout.
The Bottom Line
These stocks will eventually breakout, but “When?” is the primary question. As these ranges increase in duration, the likelihood of a breakout increases. Control risk with a stop loss order in case the price doesn’t move as expected (For more, see: The Stop-Loss Order — Make Sure You Use It). Traders can wait for a breakout and make a trade then, or they can look at the overall trend and buy within these ranges expecting that the price will eventually continue in the direction of that overall trend.
Disclosure: The author doesn’t have positions in the stocks mentioned.
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