Smells Like a Buy

 | Oct 07, 2013 | 9:30 AM EDT  | Comments
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I'm currently looking at the buy side of Yum! Brands (YUM) for a few different reasons. First, let's look at where this stock made an intermediate low on Sept. 4.

On the daily chart below, I have illustrated a clustering of Fibonacci time cycles that came due between Sept. 3 and Sept. 6. One of the standout cycles within this group of cycles was the 100% projection of a prior decline that lasted 16 trading days into the April 23 low. If you project 16 trading days from the Aug. 12 high, you see the cycle came due exactly on Sept. 4, which is when that last intermediate low was made.

Yum! Brands (YUM) -- Daily
Source: Dynamic Trader

That concept is what I call "time symmetry." It is when the timing of prior swings in the same direction are similar or equal -- and, in this particular case, they were equal.

Next let's take a look at the price axis of the market. When the Sept. 4 low was made, the stock also had a price cluster of support that came in between $68.30 and $68.79. Within this zone there were two 100% projections of prior declines, a 78.6% retracement of a prior swing and a 1.272 extension of another. On the chart below, notice that one of the prior swings that I labeled was $6.34 -- and the stock declined $6.35 into the Sept. 4 low. That is what I call "price symmetry."

The initial rally from the Sept. 4 time-and-price low took Yum! Brands to $73.76, where the stock failed at a hurdle of resistance on the way up. So now, if the Sept. 4 low is to prove itself as a more important level, we should watch for a possible resumption of the rally from somewhere above it.

We've recently seen a nice, healthy pullback into a trendline -- an area that just happens to overlap a 78.6% retracement back to the Sept. 4 low, along with another 100% projection of a prior swing. This support comes in at the $69.50-to-$85 area. I'm looking to take my buy triggers in this stock, with the maximum risk defined below the Sept. 4 low.

If we do start to see this scenario unfold, the initial upside target I'm shooting for comes in at $76.86. I will consider myself wrong if the Sept. 4 low is taken out instead. Since we don't always meet our targets, I would also suggest using a trailing stop.

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