I've been looking at Under Armour (UA) lately, and I can make a case for a short position here, given its series of lower lows and highs since the Sept. 14 high. Within this bearish pattern in place, I'm seeing a Fibonacci price cluster of resistance that the stock is currently testing at the $55.14-to-$56.35 area.
The levels overlap each other quite well here, so you will not be able to read them -- which is why I have labeled them on the chart. This zone includes the coincidence of at least five price relationships that come together within a relatively tight range, with two of those representing 100% projections of prior rally swings. Oftentimes a market will stall or terminate a move around these projections. Also note the similarity of this last 13-session $6.30 swing and the $6.24 climb into the Sept. 14 high, which likewise lasted for 13 trading days.
Now let's drill it down to a 30-minute chart. Before I consider any trade entry, I want to see some sort of reversal indication against the zone, as that would indicate it's worth placing a bet against this price area.
In this case, I have seen some reversal indications. First Under Armour took out the prior swing low at $53.72. Second was the moving-average crossover to the downside that I like to see -- the eight-day exponential moving average over the 34-day EMA. Once both of these things have occurred, my trading plan allows for a short position. The risk here is defined above the recent swing high into the $55.20 zone.
When I'm patient enough to refine an entry, I will wait for a pullback following the initial sell trigger. The decline I'll seek should be anywhere from a 50% retracement to a 0.786 retracement of the prior swing -- $54.18 to $54.76. In Friday's session I will look at a bearish options strategy in Under Armour, with my risk defined above the $55.20 swing high.
For those who want to give it a little more room, a stop can be defined above the high end of the cluster zone, or above the $56.35 area. The downside potential, if this setup plays out fully, is to the $47.19 area. If the trade starts to move in your favor, though, I suggest getting to a breakeven stop as soon as possible, and then to trail a stop as you go. If you get stopped out, then of course you should move on to the next trade setup!
The risk-reward scenario, or "pot odds," looks good on this one.
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