Waiting for a Signal From Gilead

 | Dec 18, 2013 | 9:00 AM EST  | Comments
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To hold or not to hold ... that is the question. When we are looking at a particular trade setup based on Fibonacci, one of the most important things for me is for price to hold above a "trade zone"... and then for a trigger to fire off, telling me it is worth placing a bet against it.

Now, since the zone typically defines my risk, I like to go down to a lower time frame chart to look for such a trigger. This way, we should see a signal fire off relatively close to where our risk is defined.

My triggers are relatively simple. If I have a setup on a daily chart, for example, I typically go down to a 15-minute (the aggressive swing-trade trigger) or 30-minute (regular swing-trade trigger) chart to watch for my trigger. (You will tend to have more stop-outs if you use the aggressive 15-minute chart trigger.) For a buy-side setup, I want to see two things. I want to see the eight-day exponential moving average cross above the 34-day EMA (moving average crossover), and I also want to see a prior swing high taken out, which would also suggest a possible shift in the trend.

For example, we would generally see a pattern of lower lows and highs (on the lower time frame chart) as we move into a daily support decision. If we see a shift by taking out a prior swing high, this is the first indication that the pattern may be shifting to higher highs and lows. With this in mind, let's take a look at a trade setup in Gilead (GILD).

On the daily chart of this stock, I'm looking at a beautiful symmetrical pullback so far. This current decline is very similar to a few of the prior declines within the larger uptrend. Besides this, price is above both the 200- and 50-day simple moving averages.

I would like to consider two price support clusters for a possible entry. The first zone comes in at the $67.31-$69.25 area. The second zone comes in at the $64.75-$65.42 area. So far, price is testing and holding above zone 1. I am not yet seeing a buy trigger for an entry against this zone. Be patient.

Besides the price work that is suggesting a possible low, I'm also seeing some timing cycles between Dec. 16 and Dec. 19 that also suggest a possible low. Notice that the last decline in Gilead lasted six trading days. We are currently six trading days down from the last high.

When I see swings that are similar in time, I really start to pay attention. Bottom line, I am stalking Gilead for a possible entry on the buy side against one of these two zones. I am patiently waiting for such a trigger before I will place a bet on the buy side using a bullish options strategy. If I don't see a trigger, I will stand aside. The potential upside target at this point in time is the $78 handle.

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