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5 Breakout Trades to Profit From the 'January Effect'

Stocks in this article: WMT XOM AUQ BWA CLH

AUQ is forming an ascending triangle pattern, a setup that's formed by horizontal resistance above shares and uptrend support below them. Essentially, as AUQ bounces in between those two price levels, it's getting squeezed closer and closer to a breakout above that $9.50 resistance level. When that happens, we've got a buy signal for this stock.

Whenever you're looking at a technical pattern, it's important to think in terms of buyers and sellers. After all, triangles, wedges, and the like are a good way of describing what's happening on a chart, but they're not the reason why it's tradable. Instead, it all comes down to the supply and demand caused by those buyers and sellers.

The horizontal resistance level in AUQ is a place where sellers have previously been more eager to sell and take gains than buyers have been to keep buying. But uptrending support tells us that buyers do have some control over shares at lower levels. The breakout means that buyers were able to absorb all of the excess supply of shares that was sitting above $9.50. Without that price barrier, this stock should have a lot more room to run.

BorgWarner

Automotive component maker BorgWarner (BWA) could be in for some good fortune of its own thanks to a reversal pattern that was shaping up in shares for the better part of 2012. Now, with this stock exceptionally close to a breakout level, investors had better take a closer look at this setup in January.

BorgWarner is currently forming a double bottom, a reversal pattern that's formed by two swing lows that bottom out at approximately the same price level. Those two bottoms are separated by a peak, a level that marks the trigger point for this trade. For BWA, that breakout level is $77.50 -- a move above that price sends a buy signal for this stock.

When the breakout does happen, I'd recommend keeping a protective stop nearby.

Clean Harbors

Last up is environmental services firm Clean Harbors (CLH).

Clean Harbors spent the last year in a downtrend, dropping in value by more than 12.44%. But this stock is another example of a potential reversal in January. Right now, Clean Harbors is forming an inverse head and shoulders pattern, a setup that's formed by two swing lows at approximately the same level (the shoulders) that are separated by a deeper low (the head). The pattern indicates exhaustion among sellers, and after the decline this stock has had in the face of a broad equity rally, it shouldn't come as a shock that sellers are a little bit fatigued by now.

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