I consider the overall pattern of CF Industries (CF) to be bullish, with higher highs and higher lows. This is one reason I want to set up on the buy side. The second reason is the fact that price is currently above both the 200- and 50-simple moving averages, which is considered technically bullish.
By looking at the chart, I could see that some of the swings in price looked very similar to each other, so I measured them to make sure. There was one prior decline of $19.10, and another that was $20.10. I compared these prior swings with the recent swing down into the $214.47 low, which was $18.96. By projecting 100% of both of the prior swings from the Jan. 30 high, the support levels illustrated with the red lines on the chart showed us the potential support in this stock. These projections also happened to overlap the 0.618 retracement of the Dec. 24, 2012, low to the Jan. 30 high, and a 0.50 retracement of the Nov. 8, 2012, low to the Jan. 30 high. All these price relationships created what I call a Fibonacci price cluster zone between $211.78 and $214.33.
Beyond looking at the price axis of the market, there are also timing cycles for a possible low that came due between Feb. 14 and Feb. 21. The time zone seems a little wide due to the long weekend. When timing cycles are relatively close together, this suggests a possible reversal of the current trend. Since we have been trading down into these cycles, we are looking for the resumption of the rally.
The plan is to take buy triggers in CF as long as it continues to hold above the $211.78-$214.33 area. The risk can be defined either below the low end of this cluster zone ($211.78), or below the low prior to the buy trigger firing.
If price continues to hold above the most recent low, the initial upside target for this trade comes in at the $237.55-$238.59 area. Target 2 comes in at $245.15. If the same key support zone is violated instead, this will negate the setup.
For more information on how to trigger into a trade setup like this, please refer here.