Home Depot Has Headroom

 | Sep 18, 2013 | 2:00 PM EDT  | Comments
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Here is a trade setup in Home Depot (HD). Not all my favorite moving averages are on my side, but I still think this one has upside potential.

Note that price is above the 200-day simple moving average but not the 50 SMA.  This trade setup started with a price cluster of support on the daily chart that has already been tested at the $71.76-$72.28 area. A Fibonacci price cluster is the coincidence of at least three key Fibonacci price relationships that come together within a relatively tight range.

In this case it indicated a key support decision. This cluster included two 100% projections of prior swings along with a 1.272 extension of another. The most important projection I feel comes from the 100% projection of the first swing down into the June 24 low, which was a $9.15 decline. I projected 100% of this decline from the July 17 high, which identified possible support at $72.08. Note that the actual low was made at $72.21, which made the swing into the Sept. 6 low of $9.02. Note the symmetry or the similarity of those swings!

Not only did we have price support at the last low, we also had Fibonacci timing parameters. Illustrated on the chart below, you can see the confluence of three time cycles that came due between Sept. 5 and 6. The actual low was made on Sept. 6 directly on top of these cycles.

Bottom line, I have to consider the Sept. 6 low to be key and pivotal in Home Depot. If price continues to hold above here, my upside targets for a continued rally come in at $84.10, $87.34 and $96.69. There is no guarantee that my targets will be met, but I will certainly shoot for them. If you want to keep the "edge" in this trade, then wait for a pullback for an entry and then risk below the Sept. 6 low. If you want to be more aggressive, then you still need to risk below the Sept. 6 low.

I will consider the trade setup a bust if that low is taken out instead!

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