Keep One Foot Out the Door

 | Jan 27, 2013 | 6:30 PM EST
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As longtime readers will know, I watch both the time and price axis of the market to help determine when a move may be ending, even if only temporarily. Currently, Priceline (PCLN) is flashing technical signs of both kinds that its current rally may be coming to an end.

On the price axis, I watch for Fibonacci extensions of prior swings as well as symmetry projections -- that is, 100% projections, or "measured moves" of prior swings in the same direction. Fibonacci price extensions are essentially retracements of prior swings beyond 100%. The extension ratios that I typically use are 1.272, 1.618 and 2.618, and I will watch for possible support or resistance when one of these ratios is approached.

Priceline (PCLN) -- Daily

On the Priceline chart, one example of this would be the 1.272 extension of the Sept. 18 high to the Oct. 23 low, which comes in around $675.23. Note that the actual high was hit just a bit beyond this area, at $679.23, followed by a $82.08 decline.

More to the point, take a look at the $125.26 rally swing from the Oct. 23 low to the Dec. 3 high. I projected 100% of this prior swing from the most recent low at Dec. 27, which gives us $722.41 as possible natural resistance level to the stock's most recent rally. This just happens to overlap a 1.618 extension of another major swing, as well as a 0.786 retracement of a larger swing.

So we are looking at a price-cluster zone for possible resistance between $722.41 and $729.96. This does not mean Priceline will definitely make a high in this zone, but it does tell us to watch for sell signals if the stock fails to clear it! Many moves tend to terminate at extensions of prior swings, and Priceline is currently pretty close to this key area, so I have to watch for a potential termination of the current rally. In general, I always suggest putting in trailing stops close to the current price when a stock trading close to these extension, as it's better to be safe than sorry.

As for the time axis, I'm looking at the confluence of key Fibonacci time relationships around two different sets of dates. You can see two time windows illustrated on this chart -- from Jan. 24 to Jan. 31 and from Feb. 5 to Feb. 7. The latter zone is slightly more compelling due to the 100% time projection of a couple of the prior swings on the chart, which respectively lasted 26 and 27 trading days.

In fact, if you look at a few of the other swings I've labeled, you'll see swings lasting 24 to 27 trading sessions quite a bit. Note, for example, the three declines that lasted for very similar time frames: 24, 26 and 25 days (illustrated in blue). The counts of those prior declines helped me to identify the Oct. 23 low as key and pivotal once we started to see a reaction off the timing cycles, as projected by those prior declines. A healthy rally followed this time-cycle low.

So, given the key forthcoming price and time resistance, I strongly suggest that you trail up stops closer to the current price.

Also note that, between now and Jan. 31, I'm seeing a nice confluence of timing cycles in the S&P 500 that could terminate the broad-market rally. If I start to see sell signals in the indices, it will be time to exit the long side there as well -- at least for the time being.

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