Considering Two Retailers

 | Feb 01, 2012 | 8:45 AM EST  | Comments
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The stock market indices and many key stocks are technically overbought. Will the market will provide a healthy corrective decline so we can look at some better purchase prices or will it just continue moving higher from current levels? I do not know the answer that question, but I can provide you with some very clear trading parameters on Macy's (M) stock today -- and then the market will tell you whether to place a bet against these key price support parameters. Please refer to my prior information article on trades and triggers.

First, let's look at a daily chart of Macy's. I'm using one of my favorite tools, which I like to call symmetry. My definition of symmetry in terms of the market is similarity or equality when comparing market swings in the same direction. The way I'm using symmetry on this daily chart of Macy's is by taking the 100% measurements of the prior swings down that are illustrated on the daily chart and then projecting them from the most recent high made on Jan. 19. These prior declines were anywhere from $2.83-$3.83. I will also look for any other overlapping Fibonacci retracements or extensions to identify an area of possible support to look for a buy entry within this healthy uptrend. There is a .618 retracement of the prior swing that overlapped these symmetry projections beautifully. The daily support decision comes in at the 32.09-33.09 area, which has already been tested with the recent low being made at 32.84. Before we make a decision about this first zone however, let's look at a weekly chart of Macy's.

Macy's (M) -- Daily
Source: Dynamic Trader

The weekly pattern of Macy's is very similar to the daily pattern. It is a bullish pattern of higher highs and lows, however the corrective declines within this higher time-frame pattern are much larger than what is illustrated on the daily chart. The weekly chart has projections between $4.63 and $8.33. I have taken these prior corrections and have also projected them from the recent high made on Jan. 20. I have also run my other Fibonacci retracements and extensions. This technical exercise offers me two alternative support zones if the market starts to experience a deeper downside correction. The zones on this chart come in at 30.26-31.29 and then at 27.02-28.93.

Bottom line, both the daily and weekly charts are setting up on the buy side. I am currently stalking it for a buy entry using my triggers that I have described in the article I've linked to above. I'm watching the stock indices for clues as to whether or not we will see the lower zones or if I will just have to bite the bullet and step up at the current support now being tested. If we do start to rally from one of these key price decisions, the first target for the trade setup is always the 1.272 extension of the prior high into the low. The maximum risk can be defined as just a bit below the low end of the same key zones after an entry trigger fires off.

Macy's (M) -- Weekly
Source: Dynamic Trader

Taking a quick look at Amazon (AMZN) after the company's earnings release has me considering two things. The first is that the Dec. 29, 2011 low was considered key and pivotal due to some timing parameters and only a minor price support decision. If that low is more important, then it is possible that we will see some renewed buy signals against it after this stock settles down -- which will hopefully occur in the next couple of sessions. Beyond that, if a new low is made, the next key support decision will come in with a Fibonacci price cluster decision at the $155.39-161.26 area.

Amazon (AMZN) -- Daily
Source: Dynamic Trader

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