Trade These Stocks on a Re-test of Breakout Level Tickers in this article: DOV, JNJ, MMC, AAL No matter how much research you do, breakouts will be missed. This isn't a bad thing actually. The main problem with breakouts is the potential for multiple, usually small, false breakouts. If a stock or ETF has already aggressively broken out, there is a good chance that breakout is legitimate. All that's needed is a second chance opportunity to get in. A"re-test" of the breakout area often provides such an opportunity. While the re-test is common, it doesn't always happen. Here are four stocks that recently re-tested a breakout point, or that provide a potential trading opportunity if the breakout area is re-tested in the future.
Dover Corporation (DOV) 
Dover Corporation (DOV) is an example of a stock where the price has broken out and already provided a second chance entry opportunity. On April 23 the official breakout occurred from a multi-month triangle pattern. The following day the price retreated into the pattern, likely fooling many into thinking this was a false breakout. The buying resumed the following session and the price rallied to the upside. By May 7 though the price had pulled back to the breakout point, near $74.30. This was a second-chance opportunity to get long.
Since the price broke out of a triangle, that pattern can be used to provide an approximate profit target for the trade, regardless of whether the trade was entered on the initial breakout or the second chance pullback. Adding the height of the triangle to the breakout price gives an estimated target of $80 and $81.
Charts courtesy of FreeStockCharts.com.
Johnson & Johnson (JNJ) 
Johnson & Johnson (JNJ) formed a triangle pattern between February and April. On May 8 the price broke the pattern to the upside, but like Dover Corporation, over the next few session the price retreated into the pattern. Eventually the price followed through to the upside and the breakout was confirmed. The initial breakout occurred at $101. That the price ran as high as $104.48 shows the breakout had legs and that momentum could carry the price higher after a pullback. The price doesn't always pull back to the exact breakout level and then reverse though. Look to buy within a range around the breakout price. In this case, a buying opportunity occurs between approximately $102 and $100 (old triangle resistance). Based on the height of the triangle the target is $105.50 to 106.50.
Marsh & McLennan Companies, Inc (MMC) 
Marsh & McLennan Companies, Inc (MMC) broke above a triangle pattern on May 8 and proceeded to put in a new high at $59.28. The original breakout occurred near $57.60, so look for an entry between $58 and $57. The entry area is smaller than it was for Johnson and Johnson because Marsh & McLennan is about half the price. If the pullback to the entry area occurs, the target for the trade is $60. An alternative drawing of the triangle provides a longer-term target of $62 to $63.
American Airlines (AAL) 
American Airlines (AAL) broke out of a range (rectangle) to the downside on May 20. A pullback to the original breakout point near $45.95 presents an opportunity to get short. Short entry area is between $46.50 and $45.50. The height of the range is approximately $10; subtracted from the breakout price, that provides an estimated price target of $36.
All trades should have a stop loss order attached. When trading the second chance breakout method put the stop loss just below a recent swing low (within the former pattern) when taking a long position, or above a recent swing high (within the former pattern) when taking a short position. In the case of American Airlines, if the price pulls back to the entry area, place a stop loss above $50.30--the most recent swing high within the pattern prior to the breakout.
The Bottom Line Missed a breakout? Don't fret. Many breakouts provide a second chance opportunity to get in. Profit targets can be estimated based on the chart pattern the price broke out of. A stop loss is placed inside the pattern. Only take a trade if your profit potential (difference between entry price and target) is greater than your risk (difference between entry price and stop loss level) by a factor of two or more. You may opt to enter at a slightly different price than the entry areas provided, based on other technical criteria or price action. Losing trades happen, so only risk a small percentage of account capital on any single trade.
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