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5 Stocks to Trade for Breakout Gains


First up on our Tweet-driven list is Coach (COH - Get Report), the handbag and fashion accessory company that's seen its shares rally more than 20% so far this year. Coach is a good example of why technical inputs can be so valuable for investors: this stock has been on a momentum tear for the last few years, and fundamentals aren't worth much when investors are trying to determine when that rally might run out of gas.

A potentially bearish setup in shares of Coach does, though.

Right now, Coach is forming a head and shoulders top, a bearish formation that indicates exhaustion among buyers. Keep in mind that the existence of the pattern doesn't mean that Coach's shares are moving lower just yet -- it has to trigger first. For that short signal, shares need to break down below the neckline at $72.

Even though the head-and-shoulders (and its inverse) is likely the most well known technical pattern, it's still a valuable one: an academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant."

At this point, it looks like the right shoulder still needs time to form in order to get a clearer picture of what's going on in Coach. That said, if I were a Coach shareholder, I'd be keeping a very close eye on that $72 neckline.

Coach shows up on a recent list of 12 Highest-Rated Consumer Stocks Picked by S&P.
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