Climbing Into P&G

 | Feb 15, 2012 | 11:00 AM EST  | Comments
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Stock quotes in this article:

pg

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XLP

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ua

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IYK

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VDC

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When I'm looking for viable trade setups, one of the highest-probability ones I can identify involves Fibonacci relationships coming together on both the time and price axes of the name. Before I give you a more current setup, I'll go over one that's already getting close to the initial upside target for the move: a time and price setup in Under Armour (UA).

Under Armour tested a key Fibonacci price support cluster ($67.83 to $70.01) into a cluster of timing relationships that came due between Dec. 21 and Dec. 26. The actual low was made on Dec. 21 at $69.69. Within days of that low, we saw our first buy triggers suggesting an entry for a swing trade.

Under Armour (UA) -- Daily
Source: Dynamic Trader

Since then, Under Armour shares have continued to rally toward an upside target that comes in at the $92.22 area (1.272 Fibonacci extension of the Oct. 31 high to the Dec. 21 low). Right now, I am still looking at buying pullbacks in Under Armour so long as the stock holds above the Dec. 21 high and doesn't meet the ideal target around $92.22.

Even though there is still potentially more upside on that trade setup, let's look at a similar play that's still a bit closer to the beginning of the move than it is to the end. I'm thinking of Procter & Gamble (PG), a sizable component of a number of ETFs -- including Consumer Staples Select Sector SPDR (XLP) at 13.4% of the portfolio, Vanguard Consumer Staples (VDC) at 11.9% and iShares Dow Jones U.S. Consumer Goods Sector (IYK) at 11.6%.

In P&G, I still consider the larger trend to be upward as long as price holds above the Nov. 25 low. I prefer trend trades, so I'd like to set up the buy side. As far as the price support is concerned, I was looking at a relatively wide zone, from $61.17 to $62.60. Actually, there were a few levels that came in above $62.60 -- but, once they were violated, I deleted them from my chart, as they were no longer valid as possible support.

Procter & Gamble (PG) -- Daily
Source: Dynamic Trader

As far as Fibonacci timing cycles go, I was looking at the confluence of cycles that came due between Feb. 1 and Feb. 3. The actual low was made at $62.56 on Feb. 3, directly on top of key support. This was follow by what I use as a "buy trigger" to enter for a possible swing trade. If the price continues to hold above the Feb. 3 low, I'll look at the pullbacks in P&G, seeking buy entries for a possible move to target 1 -- $68.21. If target 1 is met, $69.74 would be target 2.

But if, instead, the Feb. 3 low is taken out, the trade setup will become a bust. At least we know what our risk is on the trade!

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