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TheStreet Open House

5 Trades to Profit From a January Rally

Stocks in this article: VMWVSIGSNAWTW

Signet Jewelers

2012 was a strong year for shares of mid-cap jewelry chain Signet Jewelers (SIG). Shares of the company have rallied around 21.5% in the last 12 months, and now they look primed to go even higher thanks to a trend channel that's constricting this stock.

Signet started in a trend channel at the start of July, bouncing in between trendline resistance to the upside and trendline support acting as a floor below shares. In total, SIG has managed to bounce off of support no less than seven times since the middle of the summer -- an impressive track record that indicates that there's significant demand for shares right at that uptrend line. Now, with SIG sitting right above support, we've got a good buying opportunity for shares.

When you're looking to buy a stock that's in an uptrending channel, the ideal entry point comes on a bounce off of support. That's because it the spot where your potential reward (the distance from the stock's current price to trendline resistance) is the highest, and risk (the distance from the stock's current price to trendline support) is the lowest.

If shares break support, then the channel is broken and it's time to exit. I'd recommend keeping a protective stop just below that price level.

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