Taking a Swipe at American Express

 | Feb 04, 2013 | 10:00 AM EST
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I'm seeing a nice-looking trade setup in American Express (AXP) off a particular support cluster -- one that comes in between $57.91 and $58.65.

American Express (AXP) -- Daily
Source: Dynamic Trader

That zone was identified by calculating quite a few 100% projections of prior declines on the daily chart. It also included some key Fibonacci retracements, as well as an extension of a prior minor swing.

So far, AmEx has hit a low at $58.70, just a nickel above the price-cluster zone, and the price held -- so it's time to look for a buy entry. We've already gotten the all-clear signal from buy triggers, but you can still look for a secondary entry on a pullback.

As for risk, we'll define it either as being below that $58.70 low, or below the low end of the price-cluster zone at $57.91. Target 1, if AmEx continues to hold above $58.70, will be at $62.86 -- the 1.272 extension of the downswing into the price cluster. Target 2 is always the 1.618 extension, in this case $63.99, and target three is a 2.618 extension -- $67.26.

Now that we've defined these parameters, let's take a look at how you can still get into this trade by looking at a "trigger chart." After a stock tests and holds above a key price area, I dial it down to a lower time frame chart for an entry -- and, if you've read my guidelines article, you'll know I like to use a 30-minute chart for a swing trade.

American Express (AXP) -- 30-Minute Chart
Source: Dynamic Trader

For a buy entry, the stock needs to take out a prior swing high, and its eight-day exponential moving average needs to cross above the 34-day EMA. It does not matter which happens first -- just that both criteria are met. Again, an initial buy trigger has already been seen, as illustrated on the chart -- so now we can look at a secondary low-risk entry by waiting for a bit of a pullback. The ideal pullback zone would be around $59.09 to $59.62.

If you prefer a more aggressive entry, that is fine, but remember to define your risk either below the recent low or below that zone! Many of my traders will even wait for a confirmation of the pullback zone. Everyone who uses this method does it a little bit differently, and you can tailor your trading plan to fit your own personality. My work is meant to define risk.

But the bottom line here is that I like the buy side of AmEx against the recent low. My stop is below $58.70.

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