All Clear for Entry

 | Jul 07, 2013 | 6:00 PM EDT  | Comments
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Stock quotes in this article:

crm

In my columns, sometimes I'll identify a trade setup before any entry triggers have fired off, meaning the reader must wait on a signal before they can safely jump into the trade. Other times, I'll wait for a trigger to come before I'll write about an entry on a pullback -- in which case the stock is already cleared for entry. The following setup falls into that second category.

The stock in question is Salesforce.com (CRM), which has seen a healthy pullback since the May 20 high. True, the basic moving averages are not in our favor here, as the stock is currently below both the 50- and 200-day lines. Nonetheless, I have reason to believe that the most recent low was key and pivotal.

 

Salesforce.com (CRM) -- Daily
Source: Dynamic Trader

 

First look at the prior major swing, which I have illustrated on the daily chart -- a $11.14 decline into the Aug. 2, 2012 low -- which gave way to a healthy rally. The most recent decline, from the May 20, 2013 high into the June 21 low, took the stock down by a very similar $11.49. That represents what I call symmetry, or similarity with a prior swing in the same direction. Beyond that symmetrical decline, I'm seeing a meaningful cluster of Fibonacci price relationships between $34.91 and $36.74.

As far as timing is concerned, I also see a confluence of five Fibonacci time cycles that had come due between June 19 and June 25. When I spy a clustering of timing cycles, I watch for a possible change in whatever the trend is at that time. Since the stock had traded down into that time window, the prediction had been for a reversal back upward.

The actual low in Salesforce was made on June 21 at $36.09, and buy triggers have followed on the 30-minute chart (see here for more on trade triggers).

So, to recap, here are the trade details:

  • Fibonacci price support: $34.91 to $36.74
  • Fibonacci timing cycles for a low: June 19 to June 25
  • Actual low: $36.09 on June 21
  • Risk: Below $36.09
  • Potential target: $50.71
  • Resistance hurdle: $42.57 to $43.92

I am a buyer of Salesforce on pullbacks to the June 21 low, with my maximum risk defined below that level. The first major potential upside target comes in at $50.71, though I would protect profits on a failure to clear an important hurdle on the way up at the $42.57-to-$43.92 area. I will consider myself wrong if the June 21 low is taken out on the downside.

For more information on trade triggers, please refer here

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