Technical Setups of the Week

BALTIMORE (Stockpickr) -- Murmurings of the January Effect are in full effect today following Monday's 1.13% gain on the S&P 500 and this morning's early strength in Europe and the U.S.

The January Effect, the phenomenon of higher equity prices during the first month of the new year, has taken greater significance of late as investors try to erase memories of 2008's market losses.

While the first trading day for 2011 certainly gave investors an auspicious start to the year, yesterday's significance is a bit overblown. Instead, if any single data point should get extra attention this week, it's the current sentiment scores we're seeing.

Related: How to Trade This Week's Earnings

The market's purely sentiment-driven, after all. Investor sentiment has been increasingly bullish over the course of the last month, and for that reason, it makes sense to take a look at potential technical setups that could bear fruit in January.

Remember, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's chart patterns and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.

Here's a look at this week's potential trades.

Office Depot

An analyst upgrade gapped shares of Office Depot ( ODP) nearly 8% higher in yesterday's trading, a nice start to the year for a stock that saw red in 2010.

The past few years have proven difficult for the $1.62 billion office supply firm, as waning profitability and significant economic headwinds cut into the firm's fundamental performance during the last five years: Shares are down more than 81% since 2006. But an attractive setup in shares could help investors regain some of that price action in the short-term.

Office Depot's gap-up to $5.83 yesterday was significant because of where shares ended up at the close -- right at a previous high that's acting as current resistance for the stock. With bullish momentum in control of the market right now, traders shouldn't have too much trouble bidding up shares of this stock through resistance in the next few trading sessions. That push above an upside barrier could mean big things for shares of Office Depot, though.

Don't be deterred by the 20% run-up shares have seen in the last month; with the nearest upside barrier soon to be taken out, shares should be free to run higher. That said, I'd suggest actually waiting for a confirmed break above that resistance line (in the chart above) before going long. Consider a protective stop right below the 200-day moving average.

Office Depot was one of the 10 worst-performing S&P 500 stocks of 2010. Recently, Jeanine Poggi flagged it as a potential retail M&A target in 2011.

Concur Technologies

Employee spend-management firm Concur Technologies ( CNQR) may not have the most exciting product offerings for Main Street investors, but this stock has impressed Wall Street with a solid track record of double-digit growth.

Shareholders have been rewarded in kind, with 23.5% gains in the last 12 months, but for shorter-term traders, now could be the ideal time to make a bet on shares.

Shares of Concur have been locked in an uptrending channel since the summer, bouncing in a well-defined range of higher highs and higher lows. Right now, this stock is sitting right at the convergence of trend line support and the 50-day moving average, a setup that significantly limits this stock's downside risk right now.

Ideally, traders will want to wait for a bounce higher off of support before actually taking a position. That bounce happened in yesterday's trading, signaling that now is a good time to buy. If you opt to trade this mid-cap, wait for intraday strength and place a tight stop below support.

Major holders of Concur include Ruane Cunniff & Goldfarb, which also owns Fastenal ( FAST) and Google ( GOOG).

Endo Pharmaceuticals

A somewhat different setup is forming in shares of Endo Pharmaceuticals Holdings ( ENDP). In mid-2010, this pain-management biotechnology firm rallied hard, only to consolidate at the end of the year.

Typically, sideways consolidation like that is a continuation pattern -- one that suggests another leg higher is going to be in store after shares get a chance to bleed off momentum.

But for adaptable traders, there's an attractive if-then setup to start 2011. Simply put, an if-then trade is one that could go either way, depending on the stock's price action. While that could be said of any stock (obviously, it's a pretty safe bet that any play will either go up or down in the short term), the key to an if/then play is specifying the triggers that would execute an actual trade on this setup.

In this case, those triggers are the horizontal support and resistance lines that bound the consolidation channel in ENDP. A break above resistance spurs a long-side trade, whereas a break below support means that it's time to go short.

Holders of Endo include Zebra Capital, which increased its position by 15.7% in the most recent reporting period, John Hussman and D.E. Shaw.

To see these plays in action, check out the Technical Setups for the Week portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.


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At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on

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