BTU: Trade Set Up

 | Feb 11, 2013 | 8:42 AM EST  | Comments
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When I look at any blank chart, I try to envision whether or not a particular market might be setting up using my methodology. If it looks interesting enough, I will start to analyze both the time and price axis of that chart. Peabody (BTU) looked pretty interesting to me after a relatively healthy decline, so here is what I found.

First since BTU has been trading down recently, I want to know if running Fibonacci timing cycles would suggest a possible low anytime soon. I ran a timing histogram on the program I use that identified February 11-15 as timing for a possible low using calendar day projections. I also ran quite a few trading day cycles which came due between February 8-14. These cycles and the histogram are illustrated on the daily chart below. (Trading day cycle projections vs calendar day projections are typically only a day or so different except when comparing much larger swings in time.) When I see a clustering of Fibonacci time cycles I know that the odds for a reversal of whatever the current trend is at that time are higher than usual. Since we are trading down into the time cycles I'm looking for a reversal back UP.

Now let's look at the price axis of the market next. On this daily chart I ran all possible Fibonacci price relationships from the key swing highs and lows labeled on this chart. The price relationships include retracements, extensions and projections. Running these relationships identified a key price support zone at the $22.02-$23.31 area. BTU is currently testing just above the top end of this zone with Friday's low being made at $23.36.

With both time and price parameters coming together for a possible low, the next step is to dial it down to a 15 or 30-minute chart to look for a trigger that would tell us that it is worth placing a bet on the buy side of this stock in this next week.

For more information of using triggers with my work, please refer to this article that includes the guidelines:

If a buy trigger fires off, the maximum risk on the trade can be defined below the low end of the price cluster zone at the $22.02 area. The upside potential if the trade starts to play out would be around the $31.00 area. Let's see if we get our reversal indications or not and then trade this accordingly.

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Carolyn can be followed on Twitter at twitter.com/Fibonacciqueen

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