Stock Quotes in this Article: DAL, DNDN, FCX, NFLX, STX, TXT, LYB

 BALTIMORE (Stockpickr) -- Stocks had a strong month to kick off 2012, serving up 5.6% gains for January in the S&P 500 as the broad market made its best annual start since 1994. But while the broad market tracks sideways this week, there’s reason to pay attention to some of the individual stocks that have the biggest upside potential in the coming quarter.

While high correlations are still a problem for investors, a stock that has a high correlation with “the market” can still dramatically outperform it. The question is how you find those stocks beforehand; the answer is relative strength.

With the new year here in full force, relative strength is one of the best tools we have to identify stocks that are likely to beat the market in 2012.

>>5 Stocks Setting Up to Break Out

So how does it work?

Put simply, relative strength is a ratio of a stock’s price to a broad market index. The ratio itself isn’t important -- instead, it’s the trend of the ratio over time that’s investible. According to academic research, relative strength is a statistically viable strategy over a one-to-ten month time horizon; that’s the timeframe we’re focusing on today.

To find the seven names that made this list, I used a quantitative screen to rank the top S&P 500 names with relative strength over several timeframes, then weeded out the more attractive names using technical analysis.

The result is a set of relative strength trades that should outperform as we push through 2012.

Dendreon

1-Month Relative Strength: 74.33%

Nearest Resistance: $15

Nearest Support: $13

Shares of Dendreon (DNDN) have been on fire lately, buoyed by solid 2011 sales numbers for the firm’s Provenge immunotherapy drug. Dendreon’s size and profile have made this stock a prime candidate for day and swing traders, who have latched onto the positive news in shares to propel prices higher.

74.33% relative strength in the trailing 1-month period puts this stock at the top of our list today.

From a technical standpoint, Dendreon is consolidating right in between resistance at $15 and support at $13. A push outside of that channel would be a signal to trade in the direction of the breakout. Investors should watch out for the company’s next earnings call on Feb. 27.

Dendreon was also featured yesterday in "8 Stocks Rising on Huge Volume."

Netflix

1-Month Relative Strength: 69.12%

Nearest Resistance: $125.50

Nearest Support: $113.70

It may surprise some people to see Netflix (NFLX) on this list -- after all, this entertainment stock has seen a dramatic fall from grace in recent months, culminating in a more than 60% decline in value over the course of 2011. But Netflix has bounced back hard, rallying on the heels of stronger-than-expected subscriber numbers released at the end of January. (In fact, it's one of the 10 Best-Performing S&P 500 Stocks So Far in 2012.)

The hard gap up that Netflix made following earnings complicates the technical outlook for this stock right now. While shares are consolidating following a large move, it’ll take a bit more time before any sort of reasonable trading range is defined in this stock.

It’s important to remember that this stock isn’t quite out of the woods yet -- the firm still has many of the same fundamental problems that predicated a selloff. Recent upside is more a bounce from extreme lows than confident buyers coming back into shares. Even so, the relative strength stats could mean more upside in shares for traders willing to take on a riskier position.

Netflix, which was included on a list of 6 Tech Stocks to Avoid in 2012, was also recently featured in "8 Stocks Rising on Monster Volume."

Textron

1-Month Relative Strength: 33.45%

Nearest Resistance: $28.50

Nearest Support: $24.80

Textron (TXT) is another name that’s moving higher on post-earnings exuberance. The firm delivered upbeat guidance to analysts during its Jan. 25 earnings call, a move that put the nail in the coffin for this firm’s downtrend.

Textron is a giant in the aviation business, with well-known names like Cessna and Bell Helicopter under its corporate umbrella. That’s a capital-intense business that had significant headwinds in and after the recession; it looks like TXT is finally breaking free of investors’ concerns.

Textron broke out above a longstanding $24.80 resistance level earlier this week, surpassing the price ceiling that shares last tested (and failed) back in July. After a long bottoming process, this stock is back in bull mode in 2012 (it's also one of the best-performing S&P 500 stocks so far).

Expect shares to continue higher in the near-term.

For more on Textron, the stock also shows up on a list of 17 Companies on a Roll.

Delta Air Lines

1-Month Relative Strength: 26.05%

Nearest Resistance: $11.50

Nearest Support: $10

Delta Air Lines (DAL) is profiting from the misfortune of others. More specifically, this stock has been gaining steam ever since the bankruptcy of rival AMR Corporation (AMR) offered up the possibility for an influx of American passengers moving over to Delta’s planes. Solid fourth-quarter profits helped kick DAL’s rally into high gear. In spite of the threat of rising oil prices in 2012, this airline name has good upside potential for the near- to mid-term.

Delta is another name that had been forming an ascending triangle setup in the last quarter of 2011, only to break out in the first month of 2012. That’s left this stock with a technical setup very similar to the one we’re seeing in shares of LYB.

The breakout price to watch for is $11.50 -- that’s a resistance level that previously acted as a strong price ceiling for shares. If that price gets taken out, new 52-week highs could be a possibility for DAL.

Delta, one of TheStreet Ratings' top-rated airline stocks, shows up on recent lists of 6 Airline Stocks to Buy and 17 Companies on a Roll.

Seagate Technology

1-Month Relative Strength: 24.54%

Nearest Resistance: $26

Nearest Support: $24

Hard drive maker Seagate Technology (STX) is having a good week: Shares have been rallying hard off of the firm’s fiscal 2012 earnings call on Tuesday. That’s a welcome change for investors, who’ve seen their positions held lower by weak demand for traditional computer storage products while more niche storage solutions took off.

While this week’s breakout in price doesn’t solve Seagate’s product problems, it does take some of the supply pressure of shares in February.

This week’s large gap up in shares adds some uncertainty to upside in STX. I’d recommend waiting to see how investors react to the gap before buying -- there are plenty of more pressing relative strength trades to pay attention to until then.

Seagate, one of the top-yielding computer hardward stocks, was featured recently in "6 Stocks Reaping the Benefits of Big Buybacks."

Freeport-McMoRan Copper & Gold

1-Month Relative Strength: 22%

Nearest Resistance: $47.40

Nearest Support: $45

Next up is Freeport-McMoRan Copper & Gold (FCX), a $44 billion mining stock that’s seen shares rally nearly 26% year-to-date. Like most of the other names on this list, Freeport has been benefitting from bullish earnings, as well as from the firm’s exposure to gold, copper, and molybdenum prices -- all of which act as a sort of hedge from equity prices.

Right now, FCX is testing resistance at $47.40, a well-formed resistance level for shares that’s been technically relevant since all the way back in March 2011. Traders should be keeping an eye out for a breakout in this stock – if that happens, I’d recommend putting a protective stop right at the 200-day moving average.

Freeport shows up on a recent list of 6 StocksDriving the Economy in 2012.

LyondellBasell Industries

1-Month Relative Strength: 28.3%

Nearest Resistance: $44

Nearest Support: $41

$25 billion Dutch chemical maker LyondellBasell Industries (LYB) has been rallying hard on falling natural gas prices in 2012, as lowered input costs ratchet the firm’s profitability upward. LYB primarily makes plastics, a product whose sales are largely driven by industrial demand. For that reason, this stock stands to benefit disproportionately from an industrial sector on the upswing.

Technically, this stock looks particularly compelling this month. Shares had been forming an ascending triangle setup in the fourth quarter of 2011, one that broke out in the first few trading days of the new year. That setup has propelled LYB up to test resistance at the $44 level this week; a sustained breakout above that price would be a strong buy signal for traders.

When that happens, secondary support at $41 looks like a good place for a protective stop.

LyondellBasell, one of the top-yielding chemicals stocks, is also one of David Einhorn's Greenlight Capital holdings as of the most recently reported quarter.

RELATED LINKS:

>>5 Big Stocks to Trade for February Gains
>>20 Dividend Stars Among the Mid-Cap Crowd

>>6 Winning Stocks for Super Bowl Sunday

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To see these stocks in action, check out the at Relative Strength Trades portfolio on Stockpickr.

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

Jonas Elmerraji, based out of Baltimore, 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 MSNBC.com.