Ulta Looks Ready for a Reversal

 | Dec 04, 2013 | 9:00 AM EST
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I'm currently stalking a buy side setup in Ulta Salon, Cosmetics & Fragrance (ULTA), though I have not yet seen a trigger firing off to suggest that I place my bet.

Let's start by going over the trade parameters. I'm watching two Fibonacci price clusters of support. As a general rule, these key levels constitute groupings of at least three Fibonacci price relationships, coming together within a relatively tight range. In this case we are looking at potential support between $123.75 and $124.38, and between $122.27 and $122.66. These cluster zones include Fibonacci price retracements, price extensions and projections.

Ulta Salon (ULTA) -- Daily
Source: Dynamic Trader

Now, besides the price support the stock is currently testing, I'm also looking at some timing parameters that suggest a possible low and a coming reversal. You can see on the daily chart the coincidence of at least four time relationships that come due between Dec. 4 and Dec. 6. When a stock is trading lower into a cluster of timing relationships, we look for a possible reversal of that downtrend.

Bottom line: Price and time relationships are telling us to stalk Ulta for a possible low in the next couple of trading sessions. If an entry is triggered, I will take a trade and define my maximum risk below the $122.27 support level. The minimum risk is typically defined as being below the low hit prior to a buy trigger firing off. If this scenario starts to play out, a general minimum target to shoot for is at the $135 area.

I will consider myself wrong, and will back off the trade, if both support clusters are taken out.

For more information on trade triggers, please refer here.

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