Keep an Eye on Chevron

 | Feb 12, 2014 | 8:30 AM EST  | Comments
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Stock quotes in this article:

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To find opportunities recently, I've had to focus on the slightly bigger picture on those stocks that have made healthy downside corrections. This means that, in a lot of cases, I have focused on the weekly charts.

This is the case in Chevron (CVX). This stock does not look healthy on the daily chart, and you would not see any reason to consider the buy side.

Chevron (CVX) -- Daily
Source: Dynamic Trader

On the weekly chart, however, you can process quite a bit more information by looking at the larger prior swings in the past. There are three standout price support decisions that I was able to identify on this chart: $107.26 to $109.10, $104.53 to $105.65 and $102.03 to $102.60.

Chevron (CVX) -- Weekly
Source: Dynamic Trader

Now, I won't tell you that I knew which zone might hold. I only knew these were all key price decisions. From there, I let the lower-time-frame charts tell me whether or not it was worth placing a bet against the zone.

Let me walk you through this. So far, the price tested and held above the $107.26-to-$109.10 area, and the recent low came in at $109.27. This level was close enough to the price-cluster zone to allow us to look for a trigger. For a swing trade entry, I will use either a 15-minute trigger chart for an aggressive entry, or a 30-minute chart, which is not quite so aggressive. Below is the 15-minute chart, which is showing the type of price action I like to see -- action that tell sme it is worth placing a relatively low-risk bet against a key price zone.

Chevron (CVX) -- 15-Minute
Source: Dynamic Trader

Chevron was obviously trading lower into the support decision in a bearish pattern of lower lows and lower highs. Also notice that the eight-day exponential moving average was clearly below the 34-day EMA. When I saw both a prior swing high taken out -- $110.47 -- and that the eight-day EMA had crossed back above the 34-day EMA, that was my signal to enter a bullish options strategy.

Let's say you could have entered around $110.55. Your initial stop at that point would have been placed below the $109.27 swing low. That's not much risk, right? OK, well, if you missed the first entry, what do you do? 

For myself, I will always set up the next pullback on the lower-time-frame chart. You can see on this 15-minute chart that a new support decision at the $112.15-to-$112.68 area. I would look at buying a pullback to this area with the risk defined below $111.08 -- or, if you wanted to give it a little more room, you could define risk below the Feb. 5 low.

Even if the move off the Feb. 5 low ends up being corrective, the upside potential is still rather healthy. I actually don't see any meaningful resistance on the weekly chart until $118.48, and then $120.48 to $121.08.

Bottom line: I will use these weekly support decisions to define my risk in Chevron. As long as price holds above one of these, I will be stalking the buy side.

Please refer here for more information on trade triggers, and here for general guidance on Fibonacci trade setups.

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