I have identified two new setup zones in ConocoPhillips (COP) since the recent decline from the Jan. 30 high. These are both what I call Fibonacci Price Cluster Zones. The definition of this type of trade setup is the coincidence of at least three Fibonacci price relationships that come together within a relatively tight range. These clusters identify key support or resistance decisions in the market. In this case they identify key support decisions.
The first zone is currently being tested at the $56.93 to $57.20 area. This zone includes two 100% price projections of prior declines, along with a 0.618 retracement and 0.50 retracement along with a 1.272 extension of a prior swing up. If this zone does not end up holding, there is one more area that interests me below this at the $55.93 to $56.34 area. This second zone also includes an important symmetry (100% projection) along with a 0.618 retracement of another swing.
So far price continues to hold above the first price cluster zone with the low being made at $57.05 on Feb. 6. If price continues to hold above here, take your buy triggers and define the risk either below the $57.05 swing low or just below the low end of the cluster ($56.93) if you want to give it a little bit more room.
The upside target for this setup if it plays out fully is the 1.272 of the swing into the cluster zone which is $63.41. If the trade starts to play out in your favor, it is a good idea to get to a breakeven stop ASAP and then to trail one up as you go. The risk reward is rather healthy on this setup.
If you need some help with what you can use for a "trigger entry," please refer to my guidelines article.
