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5 Big Stocks to Trade This Earnings Season

Coca Cola

The sole bearish setup we're looking at today is Coca Cola (KO - Get Report). Yes, Coke has been trending higher for all of 2012, but along the way it's been forming a well known reversal pattern: the head and shoulders. Essentially, the head and shoulders pattern is formed by three swing highs in a stock. The outside two, the shoulders, come in at approximately the same level, and they're separated by the head, a higher peak in the pattern.

>>9 Dow Dividend Stocks With A+ Buy Ratings

The head and shoulders indicates exhaustion among buyers, and tends to be a very reliable setup in spite of (or maybe because of) its popularity: a recent 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."

That doesn't mean that Coca Cola is going straight down from here. The pattern's trigger is a move through its neckline, the trend line that's connected the bottom of the pattern. Until the neckline gets broken, Coke's uptrend remains in force. If a break does happen, I'd recommend shorts keep a tight stop just above the right shoulder; next week's earnings could be the catalyst for the move.

To see this week's trades in action, check out the Technical Setups for the Week portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.


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At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on
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BRK.B $133.75 0.00%
ENB $42.91 0.00%
KO $41.98 0.00%
PX $108.59 0.00%
V $73.90 0.00%


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S&P 500 2,013.43 +15.91 0.80%
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