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In Priceline's (PCLN) bigger picture, I see the potential for an eventual rally to higher prices. The targets for such a rally come in anywhere from between $580.83 to $602.85. That said, let's be careful at Priceline's currently elevated levels, and be prepared to wait for a deeper downside correction we don't continue seeing what we've seen in recent weeks.
Yes, the broad market is behaving bullishly, and yes, it is overdue for a correction. I would much rather be buying many stocks at much lower prices. The question is whether this market will accommodate us. First I want to show you a pattern that I've found to repeat itself in the past. Let's go over a 120-minute chart so you can clearly understand what I'm looking at.
In late January, I was looking at a Priceline pullback to the $516.17-to-$522.13 area for a possible buy entry. This was a Fibonacci price cluster of support that included quite a few 100% symmetry projections of prior declines within the uptrend that started in mid-December. The price cluster also included retracements of price swings, and even a couple of price extensions.
The trend would have been considered bullish as long as price had held above the prior swing low at the $512.60 level. In this case, the ultimate low was made at $518.60, followed by a buy trigger on the 15-minute chart. After a hold above the low end of support, the stock eventually rallied by $30.40. Just to stay honest here, I see that, at the higher end of this zone, there was one buy trigger that would have fired off early. You would have taken a little heat on the trade here, or you could have been stopped out, depending on your trading plan rules.
OK, now that we know what happened in the past, let's look at the current setup in Priceline.
We are currently looking at a similar buy setup in the stock with what is left of the Fibonacci price cluster -- $524.74 to $527.61. Notice that, on the 120-minute chart below, the three largest prior declines since mid-December were slides of between $18.96 and $21.39. The current decline into the Feb. 7 low has amounted to $21.38, which is very similar.
If this same degree of rally is to continue in Priceline, then this is the area where the stock should hold. It would also need to be followed by a trigger firing, which would tell us that it is worth placing a bet against that key support area mentioned above. The maximum risk would be defined below the $518.60 swing low. Note that, so far, the 15-minute chart is not triggering an entry.
Bottom line: If this key zone holds and triggers, I will place a bet on Priceline. If this same key zone is violated, however, I will back off the buy side until we see a much larger corrective decline in the coming sessions. Let's see what Priceline does against this key price decision and trade accordingly. For this trade setup, I'd personally prefer a conservative options strategy in which the risk is reasonable and well-defined.
