Proper trend-trade setups are typically the plays that have the highest probability of succeeding. There are times, however, when it is worth looking at what would be considered a counter-trend trade, at least when your risk is clearly defined.
With that in mind, I'm starting to get interested in VMware (VMW).
When a stock has undergone an extended trend move, it is typically in position for a healthy corrective rally that should be tradable. The same goes for a stock that has met key Fibonacci extensions of prior swings -- especially major ones.
This all applies to VMware. I generally tend to look at are the 1.272 and 1.618 extensions of prior swings -- and note that, for VMware, one of the prior swings into the last low was a 1.272 extension of one swing and a 1.618 extension of another (see green lines on the chart above). These extensions just happened to overlap each other. Not only that, but if you project 100% of an April price swing from the Aug. 19 high -- the $24.25 decline between April 2 and April 28 -- you'll see this overlaps beautifully with those other price relationships.
So we have three key levels from major swings that come in at the $79.23-to-$79.81 area. In addition, VMware's took a $23.86 swing into its recent $80 low on Oct. 22, just $0.19 short of the support cluster -- a very similar move to the prior major April decline, as illustrated on the chart. This is actually similar to a recent Priceline (PCLN) setup in which the stock reached a low.
Right now, then, I'm considering this recent VMware low to be key and pivotal, as it was made at crucial price support -- and it was also followed by at least some short-term buy triggers. Now, this stock will look even better if it can also clear the $85.06 area by a decent margin. But, as long as the price remains above the Oct. 22 low, I'll be willing to take buy triggers, with my maximum risk defined below the $79.23 area. A corrective rally could at least take it to the $95 area. Some low-risk options strategies could be appropriate here as well.
I will consider myself wrong on the trade if the $79.23-to-$79.81 price cluster is violated by more than $1.
Please refer here for more information on trade triggers.
See here for general guidance on Fibonacci trade setups.