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TheStreet Open House

5 Trades to Profit From a January Rally

Stocks in this article: VMWVSIGSNAWTW

Snap-On

Snap-On (SNA) is showing traders an identical pattern right now, albeit with a more textbook context. Like Weight Watchers, Snap-On has been bouncing within a triangle pattern, hitting its head on resistance at $80 to the upside and an uptrending support level that's effectively come in at the 50-day moving average. The breakout above $80 is our buy signal for this stock.

Whenever you're looking at a technical price pattern like this one, it's critical to think in terms of buyers and sellers. After all, while the "triangle" pattern is a good way to describe what's going on in SNA, geometry has nothing to do with this stock's upside potential. Instead, it all comes down to supply and demand for shares.

Here in SNA, $80 is a price where there's an excess of supply of shares; in other words, it's a place where sellers have been more eager to take gains and sell their shares than buyers have been to buy. That's what makes the breakout above $80 so significant -- it indicates that buyers have become eager enough to absorb all of the excess supply above that price level.

Then, with the only upside barrier taken out, buying SNA becomes a high probability trade. Since the 50-day moving average has acted as such a good proxy for support over the course of this pattern, it's a good spot to place a protective stop after you buy the breakout.

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