Another Chance to Pounce on Actavis

 | Dec 22, 2013 | 6:00 PM EST
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When I first see a trade setup, I'll typically hold off and see if a key price zone hold steady -- and, if it does, I'll then wait for a "trigger" that suggests the stock is worth an entry. The typical trigger comes when the eight-day exponential moving average crosses above the 34-day EMA on the 30-minute chart, and when the stock also takes out a prior swing high or low (depending on whether it is a buy or sell setup).

For example, in the following buy-side setup in Actavis (ACT), we would have waited for both of these events: The EMA crossover and the breaching of a prior swing high. These typically indicate a shift back to a bullish trend, telling us it is worth placing a bet against the price zone we've identified.

Let's revisit my original setup from a couple days ago, which I posted on my Twitter feed. It was a relatively simple setup, as it included the coincidence of three Fibonacci price relationships, including an important "symmetry" or 100% projection of a prior decline, as illustrated on the daily chart below.

Actavis (ACT) -- Daily
Source: Dynamic Trader

If you missed the first entry, we have another opportunity if we fine-tune the work on a 15-minute chart. Support came in between $156.19 and $156.30, and the actual low was made at $156.40, which is close enough to that zone. Now, if this setup plays out fully, the initial upside target will come in around $174.35, and the second will be around $179.23.

Actavis (ACT) -- 15-Minute
Source: Dynamic Trader

Let's now take a look at the pullback on that 15-minute chart, which offers us a pullback zone for another possible entry between $159.53 and $161.94. Now, some traders will just buy the pullback and establish risk below the recent low of $156.40. Others will wait for yet another "trigger" to suggest that the 15-minute support has value.

For example, you can see if a five-minute chart triggers a reentry against this pullback zone. Either way, your maximum risk can be defined below the recent low. The tightest stop you might institute would be about $1 below $159.53, the low end of support. Your bigger-picture targets are listed above.

Let's see if Actavis can resume the rally from here. The risk-reward scenario is pretty healthy!

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