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5 Breakout Trades to Profit From the 'January Effect'

The buy signal for WMT comes on a breakoutabove the upper trendline. Obviously, this isn't a setup that you want to get in on early, since a stock can continue to fall within the wedge while investors wait for a breakout. That said, when the move happens, traders will want to take heed.

Expect momentum to be an early tip off to the move in price.

Exxon Mobil

We're seeing the same setup in another giant stock: Exxon Mobil (XOM). Even though these two businesses couldn't be more different, a quick glance at the two charts makes it clear that they've been trading almost identically for the last couple of quarters. That's not hugely surprising; they're both S&P 500 components, and their correlations are extremely high as a result of that. For traders, that just means that there's another falling wedge trade in play night now.

In Exxon, the setup works the same way. The stock has been moving in a downtrend, but the trendlines defining the moves are convering -- in other words, the stock is falling, but it's falling at a diminishing rate. The move above the upper trendline marks a buy signal in this stock too.

Momentum tells a slightly fuller picture in this stock. As with WMT, 14-day RSI has been bumping up against a downtrend of its own that's likely to break out ahead of the price move. But the fact that longer-term momentum is actually in an uptrend (the dashed grey line) is bullish. No matter what happens, it's critical to wait for the price breakout to happen before putting real money on the line -- after all, you can't make gains off of RSI, just price.

AuRico Gold

The last few months have been a lot more positive for shares of Toronto-based AuRico Gold (AUQ): shares of the mid-cap gold miner are up more than 25% in the last quarter. That, incidentally, is a whole lot better than spot gold has fared over the same period of time. But AUQ looks poised to head even higher in the near-term thanks to the technical setup in shares right now.

Stock quotes in this article: WMT, XOM, AUQ, BWA, CLH 

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