Breakout Pattern Guide
Five patterns scan the AI supply chain for actionable breakout setups. Three momentum patterns (VCP, Episodic Pivot, Power Breakout) catch stocks already in strong uptrends. Two structural patterns (O'Neil and Base Recovery) catch stocks building new bases or turning around from major corrections — setups the momentum patterns miss.
Every signal is tracked through a four-stage lifecycle: BREAKOUT (entry) → STRONG (confirmation) → TRIM (warning) → EXIT (close)
Volatility Contraction Pattern
The bread-and-butter setup. A stock in a strong uptrend pauses to consolidate, with each successive contraction getting tighter — like a coiled spring. Volume dries up during the pause, then surges on the breakout.
Key Criteria
- Prior uptrend: 30%+ gain in the last 3 months — proves the stock has momentum
- Tight consolidation: 5-day range < 10% — volatility is contracting
- Shallow pullback: Max 25% from peak — healthy pause, not a breakdown
- Volume dry-up: Current volume below 70% of 20-day average — sellers exhausted
- Above key MAs: Price above 10-day and 20-day SMA — trend intact
Why it works: Institutions accumulate shares during the quiet period. When the last weak holder sells, supply dries up. Any new demand causes a sharp move up — the breakout.
Score Factors
Episodic Pivot
A gap-up on massive volume — typically caused by earnings, a new product, a major contract, or some other catalyst. The key is that the stock holds its gains after the gap, forming a new higher base.
Key Criteria
- Large gap: 8%+ gap up on the open — the market is re-pricing the stock
- Volume spike: 2x+ average volume on gap day — institutions are involved
- Gap holds: Price stays above gap-day low for 3+ days — no gap fill
- Tight post-gap: 5-day range < 10% after the gap — constructive consolidation
Why it works: A gap on huge volume represents a fundamental re-evaluation. If the stock doesn't fill the gap, it means buyers at the new level are confident. The tight consolidation after the gap sets up the next leg higher.
Score Factors
Power Breakout
The simplest and most powerful setup: a stock at its 52-week high with top relative strength breaks out of a tight base. These are leaders in the strongest sectors — the stocks institutions must own.
Key Criteria
- Near 52w high: Within 5% of the 52-week high — already a proven winner
- Top RS rank: 80th percentile or higher — outperforming the market
- Tight base: 10-day range < 8% — low volatility launch pad
- Volume confirmation: Breakout day volume > 1.5x average — demand is real
Why it works: Stocks making new highs have cleared all overhead resistance — every holder is in profit, so there are no forced sellers. Combined with top relative strength (meaning institutions are accumulating), the path of least resistance is up.
Score Factors
O'Neil Cup-with-Handle & Flat Base
William O'Neil's classic base patterns. A Cup-with-Handle forms when a stock pulls back 15-35%, recovers to near its prior high, then builds a small handle before breaking out. A Flat Base is a shallow (<15%) sideways consolidation near highs lasting 5+ weeks. Both require an established uptrend with proper moving average alignment.
Key Criteria
- Near prior highs: Within 15% of the 52-week high — right side of cup formed or flat range
- Base duration: 25+ trading days (~5 weeks) of consolidation — institutions building positions
- Above 50 SMA: Price above the 50-day moving average — intermediate trend intact
- Long-term MA support: Above 150 or 200 SMA — confirms the primary uptrend
- MA stack: Full alignment (price > 50 > 150 > 200 SMA) scores highest
Why it works: After a correction, the stock's recovery to near prior highs shows institutional demand is absorbing supply. The handle (or flat base) shakes out remaining weak holders with minimal pullback, creating a low-risk pivot point. O'Neil's research shows stocks breaking out of these bases with volume produce the biggest winners.
Score Factors
Base Recovery (Stage 1 to 2 Transition)
Catches stocks recovering from major corrections that all other patterns miss. When a stock crashes 30-50%, the momentum patterns reject it (negative prior gains, far from highs). But if the 200 SMA flattens, price reclaims key moving averages, and a golden cross forms — that's a Stage 1 to Stage 2 transition, often the start of a new major uptrend.
Key Criteria
- Far from highs: 20%+ below 52-week high — this is NOT a momentum stock yet
- Meaningful bounce: 20%+ off the 52-week low — real buying has begun
- 200 SMA stabilizing: Slope > -1% — the long-term downtrend is flattening or turning
- Above 50 SMA: Price above the 50-day MA — intermediate recovery confirmed
- Golden cross bonus: 50 SMA crossing above 200 SMA — classic bullish signal
Why it works: This pattern caught NVDA's May 2025 recovery from $94 to $135 — a 40% bounce off lows with flattening 200 SMA that no momentum pattern could detect. Weinstein's Stage Analysis shows that Stage 1 (basing) to Stage 2 (advancing) transitions mark the beginning of major moves, often before the stock appears on any momentum screen.
Score Factors
Quality Score (0-100)
Each alert gets a quality score based on how many criteria are met and how strongly. Higher scores = more criteria met + stronger readings.
Signal Lifecycle
Every breakout is tracked through four stages. One active breakout per ticker at a time — an EXIT closes the cycle before a new BREAKOUT can fire.