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When a see a market shift patterns from bearish to bullish, I always look at the next pullback for a possible buy entry. This is what I recently saw in the stock of Dillard's (DDS), a modest component of several ETFs, including PowerShares Dynamic Retail (PMR), at 2.21% of holdings, and PowerShares Dynamic Consumer Discretionary Sector (PEZ), at 1.11%. Since the November 2011 highs, Dillard's has gone from a pattern of lower lows and lower highs to a break of that pattern -- by taking out the Dec. 27 swing high.
At that point, I set up a pullback play by running the retracements back to the Jan. 5 low, along with the 100% projection of the prior $3.74 decline of the Dec. 27 high to the Jan. 5 low. Note that the decline into the Feb 1 low -- $3.63 -- was very similar. I call this similarity "symmetry," and the entry area on which I will typically focus is where the 100% "symmetry" projection overlaps one of the retracements. I prefer to see the 0.618 or 0.786 Fibonacci retracement overlap.
Once Dillard's pulled back into this general area, I looked at my intraday charts for reversal indications against the support, looking for signs that placing a bet on this pullback had some merit. The initial risk on the trade setup was to just below the Jan. 5 low at $42.54.
I actually saw two buy triggers on a 30-minute chart. You would have taken a little heat on the first one (as I did), whereas the second one took the stock up $7.05 from the Feb. 1 low made into the pullback zone. I've included an example of a trigger chart for educational purposes.
So that was the past, but what about now? My daily chart shows upside potential to the $60.04 area, and we've been seeing a nice pullback since the Feb. 8 high. If this stock pulls back into the $46.39-to-$47.23 area in the next few sessions, I will once again look for a buy trigger with the $60.04 target in mind. For myself, that is the more ideal entry.
If you don't need to be as precise, you can also take any new buy triggers on a 15- or 30-minute chart and then define your initial risk below the prior Feb. 1 swing low at 43.70. If that level is violated, I will exit any long positions and wait for the next setup.
More on retail and earnings: