Since the larger pattern in the stock indices is still bullish, I have been watching quite a few stocks and looking for possible entries on the buy side after some deeper downside corrections. Some of the stocks I look at have bearish patterns, and I will avoid those. Others, however, are within a bigger-picture uptrend. Their current corrective declines are only similar to some of the prior declines that have been seen within their larger uptrends. One of these stocks is ConocoPhillips (COP), which is now on my radar.
I have identified this trade setup mostly by running 100% price projections of the prior declines that I have illustrated on the daily chart with the blue lines. There is also a 0.786 retracement that is relatively close to these projections, giving us a potential price cluster support zone at the $70.20-to-$71.46 area.
Note that I said ConocoPhillips was on my radar. I have not yet bought options on this name. I'm now watching for a buy trigger to fire off on the 30-minute chart, similar to the way it did the last time I had a similar setup in Conoco in late January. Let's take a look at what happened in the past, so you will have a better idea of what you can look for in relation to the current setup.
The last setup that was very similar to the current one is also illustrated on the daily chart. At that time, the support cluster came in around $67.26 to $67.99. The actual low was made on Jan. 31 at 68.
Now let's take a look at what the 30-minute "trigger" chart looked like when Conoco tested the old support decision in January. If you look at the first 30-minute trigger chart, on the left-hand side you can see we were looking at a bearish pattern of lower lows and lower highs as the stock traded down into the key support. Then you can see the shares stabilized into this support zone.
The stock then shifted gears as it took out a prior swing high, $69.17, which was the first indication of a reversal of the downtrend. After that, the move was confirmed by a moving average crossover: the eight-bar exponential moving average traded above the 34-bar EMA. That was my cue to buy some call options in Conoco, with a stop below the $68 area. The stock rallied to $78.29, down $10.29 from that low in January.
Now let's look at the current 30-minute chart of COP. On this chart we are looking at a bearish pattern of lower lows and highs as Conoco tests the key daily support at the $70.21-to-$71.46 area.
Even though the stock is still holding above this support, I have not yet seen a buy trigger, so I'm being patient. I need to see a prior swing high taken out, as well as confirmation of the same moving-average crossover I used for the trade setup in late January. If there is no trigger, I will pass on the trade.
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