Stalking IBM

 | Oct 21, 2013 | 8:40 AM EDT
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Generally, I like to focus on trend trade setups. But there are times that Fibonacci time and price analysis will give you very clear, relatively-low-risk parameters for a counter-trend trade.

I'm going to make a case here to start stalking the buy side in IBM (IBM) as we look at both the weekly and daily charts in this stock.

Let's start with the weekly chart. A pattern that I always see in the markets is that many moves tend to terminate at Fibonacci price extensions of prior swings. The main ratios I keep my eye on are the 1.272 and 1.618 extensions. For example, a recent high made in (AMZN) was within 3 cents of the 1.272 extension of the July 26 high to the Aug. 18 low, which came in at $322.95. The actual high was made at $322.92, which was followed by a $26.42 correction before making new recent highs. (The AMZN example is illustrated below on the daily chart.)


IBM (IBM) -- Weekly
Source: Dynamic Trader


The first thing I see on this weekly chart is that the last healthy corrective rally on this chart started just slightly above the 1.618 extension of the prior swing up. We are currently testing the 1.618 extension of the most recent swing up into the September highs. This is just one of the reasons I'm watching for a possible bounce start to unfold. Not only are we at an important extension, but this overlaps some other key Fibonacci price relationships on this chart along with some timing parameters on the daily chart  Let's look at the daily next.


IBM (IBM) -- Daily
Source: Dynamic Trader


If you look at the daily chart of IBM, I have illustrated both time and price parameters. As far as price support, the area we are currently testing comes in at 171.32-172.66. The timing work points out two time windows where I would look for a possible bounce. The first window we are currently testing comes in with cycles between Oct. 18-21. The second group of cycles comes due between Oct. 25-31. I have also noted the similarity or symmetry between some of the prior swings down. 

Bottom line, I do not yet see a buy trigger in IBM, but I am stalking it for a counter-trend trade where I can get involved with a relatively-low-risk options strategy. The minimum expectations for a trade would be for a $12-15 counter-trend rally and possibly more. Personally I need to see a buy trigger on a 30-minute chart before placing any bullish bets.

For more information on trade triggers, please refer here.

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