If the broad market is to continue correcting within this bigger-picture uptrend, it might be a time to go bargain-hunting for some of your favorite stocks.
Still, as far as my favorite stocks go, recently we have only been seeing minor corrective declines. If you want to be prepared to pick up some bargains, you can compare these with some of the larger corrective declines in the stocks that pique your interest -- so let's go over an example in ConocoPhillips (COP) that should give you an example of what to look for.
In late January Conoco underwent a healthy downside correction that was very similar to some of the prior pullbacks within its larger uptrend. At that time, what I did was measure quite a few of the prior declines in order to identify possible support, and an area where we might want to enter the buy side in this stock. Key support came in around $66.74 to $67.99, and the actual low came at $68 on Jan. 31. Following this low was a healthy rally of $10.29. We only considered a buy entry in this stock once we saw this key support hold and fire off a buy trigger.
Now that we are starting to see what I believe is a corrective decline in ConocoPhillips, I am going to run through the same process I did in January. Once again, I'll compare the prior declining swings, illustrated on the daily chart below, along with a few key Fibonacci price relationships.
This exercise gives me a key price-support zone that is a bit below current levels. This area -- $70.20 to $72.37 -- is where we'll watch for another possible entry on the buy side. If the stock tests and holds above this general zone, I will be looking for my buy triggers in order to reenter the sock.
The lesson here is this: Instead of panicking when the market starts to slide and correct, do be prepared instead to take advantage of opportunities that may arise!
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