5 Breakout Trades to Profit From the 'January Effect'

BALTIMORE (Stockpickr) -- Ask five different traders what they think about the "January Effect" for stocks, and you'll probably get five different answers. Call it what you will, though, January looks like it could be setting up to be a strong month for stocks.

>>5 Huge Trades for a Volatile 2013

And some names look more likely to rally than others right now.

Just a handful of trading days into 2012, the S&P 500 has already climbed more than 4%, pushed its way to within less than a dozen points of a new 52-week high, and started anxious investors wondering whether stocks were so scary after all. Those factors are likely to come into play this month as earnings season adds a dose of fundamental reality to investors' opinions. So far, earnings beats are outpacing misses by a wide margin.

But with most investors understandably fixated on earnings, we're looking elsewhere for trading opportunities today. Instead, we're taking a technical look at five big tradable charts that could pad your portfolio this month.

If you're new to technical analysis, here's the executive summary.

Technicals are a study of the market itself. Since the market is ultimately the only mechanism that determines a stock's price, technical analysis is a valuable tool even in the roughest of trading conditions. Technical charts are used every day by proprietary trading floors, Wall Street's biggest financial firms, and individual investors to get an edge on the market. And research shows that skilled technical traders can bank gains as much as 90% of the time.

>>5 Big Stock Charts You Need to See

Every week, I take an in-depth look at big names that are telling important technical stories. Here's this week's look at the charts of five high-volume stocks to trade for gains.

Wal-Mart

The bigger they are, the harder they fall -- and that's certainly been the case with Wal-Mart (WMT) over the last few months. Since mid-October, the retail giant has shed more than 11%, a time when the rest of the S&P has actually gained ground. But there's reason to believe that the selling could be coming to an end right now.

Even though the price action in WMT doesn't look particularly promising, it is. That's because while shares are making lower lows and highs, WMT is making them in a formation called a falling wedge. The falling wedge is formed by converging downtrend lines, and despite its appearance, it's a bullish pattern. In fact, one study puts the pattern's ability to spot a reversal at more than 90%.

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