Digging for a Buy in BHP Billiton

 | Nov 27, 2013 | 9:00 AM EST  | Comments
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I'm stalking a buy entry in BHP Billiton (BHP), and for multiple reasons. First off, the overall larger pattern in this stock is one of higher highs and higher lows, and price is currently above the 200-day simple moving average.

Second, the stock is currently testing a price-support cluster between $67.08 and $68.03. I've identified this area by running multiple Fibonacci price relationships from the prior swing highs and lows, along with some "measured moves" or projections of prior declines. I see at least six price relationships within this key zone.

Third, we are looking at a beautiful confluence of time relationships that also include what I call time symmetry. The cycles due come in between Nov. 25 and Nov. 27, which suggests that the odds are higher for a possible reversal around these cycles. Also note the symmetry between the timing of those declining swings, as illustrated on the chart below: Two prior declines lasted 14 trading days, and the stock's pullback into Tuesday's low has also lasted 14 sessions. I will often see a change in trend around this "symmetry."

BHP Billiton (BHP) -- Daily
Source: Dynamic Trader

What I have described above, then, is the trade setup.

Now, while I am looking at a buy in this stock, I haven't yet taken a trade, and that's because I haven't yet considered what I consider to be a trigger -- a specific movement that tells me it's worth placing a bet against this zone. For a swing-trade trigger, I typically wait for either a 15-minute or 30-minute chart to fire off a trigger. Specifically, I wait until a stock's eight-day exponential moving average crosses above its 34-day EMA, and for the stock to take out a prior swing high on the same chart.

If I do see such a signal sometime soon, and if the stock also manages to hold above those key price and time parameters, I will enter a bullish options strategy. My risk will be defined as being either below the low made prior to the signal, or below the low end of the price cluster zone.

I will consider myself wrong if the key support level is taken out. If this setup does start to play out, my initial upside target comes in at the $74.29 area.

For more information on trade triggers, please refer here

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