Watching for a Trigger

 | Mar 06, 2013 | 9:30 AM EST  | Comments
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Stock quotes in this article:

ulta

Even though this market seems to be bulletproof, I am still looking at a few bearish setups. The question is whether or not they will trigger an entry.

Last week, I set up what I call a two-step pattern in Ulta Salon, Cosmetics & Fragrance (ULTA). The pattern in this stock is bearish, as we are looking at lower lows and highs since the one-third high. Also, the price is still below the 200- and 50-simple moving averages. This makes it a candidate for a possible short entry.

There is a rather wide sell zone in this stock that comes in between the $91.47-$94.05 area. This zone is defined via a cluster of Fibonacci price relationships. Within this cluster zone there is a tighter zone that comes in at the $91.47-$92.32 area. Now that it is testing this key resistance decision -- and so far, it has failed to clear it -- I can go down to a lower time frame chart and see if there is a trigger that tells me it is worth placing a bet on the short side or not. But so far, I don't see one.

There is one more factor that I am considering with this trade setup. The current rally swing in time is very similar to two of the prior rally swings that I have illustrated on the daily chart below, which were 12 and 10 trading days. As of the close on Tuesday, it was 10 trading days up from the recent low. Notice that after those prior rallies, a healthy decline followed.

 

Source: Dynamic Trader

 

I'm not going to tell you that the exact same thing will happen again, though I would not be surprised if it did since patterns do tend to repeat in nature and the market. Let's take a look at a 30-minute trigger chart next.

 

Before I would place a bet on the short side, I would need to see (as long as it doesn't clear the resistance cluster) a prior swing low to be taken out on this 30-minute chart, along with the 8-bar EMA crossing back below the 34-EMA. (The swing low used may change as the market unfolds, but, right now, I have my eye on $89.71.)

Source: Dynamic Trader

This type of action suggests that it would be worth placing a bearish bet on this stock. If it does trigger in the next few sessions, I am likely to look at a bearish options strategy. I would consider myself wrong if the high that is made before a trigger fires off is surpassed. If the trade does start to unfold, my downside target would come in somewhere around the $81 handle. Let's see if this trigger fires off or not. Ready, set -- but don't go yet.

For more info on trades and triggers please refer here.

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