I am currently looking at a trade setup in JPMorgan Chase (JPM), which has tested and -- so far -- held above the Fibonacci cluster zone I'm seeing. This zone, $39.50 to $39.79, also defines my risk on the trade, and it includes the following.
- 0.382 retracement of the July 23 low to the Oct. 17 high of $39.55
- 1.618 extension of the Oct. 26 low to the Nov. 2 high of $39.51
- 100% projection of the May 22 high to the June 4 low, projected from the Oct. 17 high $39.79
- 100% projection of the June 21 high to the July 23 low, projected from the Oct. 17 high $39.61
The swings from which these price relationships came are illustrated on the daily chart below.
Take a look at the prior declines I've marked in red. Both of these are similar in price, and are a key component to this analysis. It's what I call "symmetry," and these patterns help me to identify key entry decisions in the market.
Besides the price support that is currently holding, I've noted a few Fibonacci time cycles that come in between Nov. 7 and Nov. 13 that suggest the odds are currently up for a low and upside reversal. This is the trade setup -- Fibonacci time and price parameters are calling for a possible low in JPMorgan. If the price continues to hold above the current low, target 1 will come in at $44.54 and target 2 at $45.81. We would also want to watch a hurdle on the way up at the $42.06-to-$42.13 area. If the stock fails to clear the hurdle, you'll want to tighten up stops on any long positions.
Let's talk about trade triggers next. There are traders who might just buy this stock as long as the price continues to hold above the price cluster zone, with risk defined below the same cluster. Personally, I like to wait for what I call a price trigger -- an indication, via price-reversal activity, that it is worth placing a bet against the price support zone. When we use such a trigger, that will often filter out many trade setups that would have never held.
So far, in JPMorgan, we're only seeing a short-term trigger that a day trader might use -- so let's look at that one. For this, I'm illustrating what I like to see on a 144-tick chart. Since I know what my risk is on the trade, as defined by the cluster zone, I want to use a chart that will trigger or fire off an entry signal relatively close to the zone where my risk is defined.
On the chart above, you can see where the low was made into the cluster zone at $39.86. After this, a prior swing high was taken out at the $40.06 level, followed by the eight-day exponential moving average crossing above the 34-day EMA. All of this signaled that it was worth placing a buy-side bet in JPMorgan, for a day trade, in Friday's session.
Taking risk overnight, however, would be another story. Even though the short-term charts have triggered the buy side in JPMorgan, that does not mean it is "safe" for a swing trade.
First of all, the stock indices are vulnerable in general at this juncture, given the bearish pattern we've seen from the September/October highs. Second, the JPMorgan's daily chart does not have the averages I use that would suggest it is the safest bet just yet. I do believe the stock is technically in the position for a bounce on the upside, but that doesn't mean it will unfold that way! Looking at my 30-minute chart, I am not yet seeing what I would to do in order to keep a long position overnight.
Until then, I'm OK with taking the buy triggers for day trades in this name.
For more information about trades and triggers, please refer here.