Macy's Looks Inviting

 | Jul 26, 2013 | 8:30 AM EDT  | Comments
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Stock quotes in this article:

m

I spy a trade setup in Macy's (M) -- that is, I've got the raw material for a trade, but I don't yet have the "trigger" that tells me it's worth jumping in.

In any case, for this setup I see a Fibonacci price cluster of support -- which I define as least three Fibonacci price relationships that come together within a relatively tight range, thus identifying a key support decision. In the case of Macy's, this range comes in between $46.49 and $47.65, where I see a coincidence of at least 11 overlapping price relationships. I also like this cluster because it includes quite a few "symmetry" projections, or measured moves, from prior corrective declines.

Now, this doesn't mean the stock will definitely hold above that zone. But it does mean this is a rather important price level. Another positive aspect of that price cluster is that it's above the June 24 swing low of $45.72. As long as this level remains intact, the stock's overall pattern will remain rather bullish.

Macy's (M) -- Daily
Source: Dynamic Trader

As for timing, I'm not seeing a major cluster here, but I do see at least three time-based relationships that are also suggesting a possible low. In other words, Macy's has put in three prior declines that have lasted a similar amount of time to the current downward swing -- so a reversal carries higher odds between July 26 and July 29. These cycles are also illustrated on the chart above.

Now, since Macy's shares are already testing and currently holding above the above-mentioned price cluster, all I need to see is a trigger -- a move that will tell me it's worth placing a buy-side bet against this key zone. I would like to see two things happen at a minimum. First, the stock should take out a prior swing high, as illustrated on the 15-minute chart below. Second, the eight-day moving average should rise above the 34-day moving average.

Macy's (M) -- 15-Minute
Source: Dynamic Trader

If I see both of these take place, I will place an options bet, with my maximum risk defined below the $45.72 swing low.

I will back off the trade if the stock drops below $45.72.

For more information on trade triggers, please refer here.

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