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Another possible trading set up to reveal on DRH. For short term trading time frames the turning point in a stocks price motion is key. However, it is just as important to trade off trading signals that have the least likelihood of stopping you out.
DRH, today September 3, 2009, has already set up for a one minute trading time frame price entry and exit completing a 5 wave sequence from its low to the close.
Todays low was 6.11 a penny lower than the day before after an extended ABC correction on the 30 minute price chart over the past 19 days. The close today was 6.35. The MACD 30 minute time frame signal crossed yesterday at the 6.12 mark and tested that cross successfully with a pennies difference.
This particular stocks MACD reading is a good example of how a crossing will always be tested, or confirmed, before heading higher, or lower if the test fails. The test will sometimes give you a better price entry, but it is the confirmation of the signal that is key to observe before any trade is executed with confidence.
If we analyze the 1 minute trading time frame for the day, we notice a full five wave sequence complete. From the low of 6.11 to the high of 6.18 at 14:05 note this as wave 1 magnitude. Notice the MACD crossing at this intermediate trading high denoting a turning point to test the low of 6.11. The test held at 6.12, a wave 2 entry point.
If we take the magnitude of this wave 1 measurement, and calculate for wave 5, we get .07 x 3.618 + 5.11 = 6.36236 a penny short of the close. So what is the trade now?
We can anticipate that the trade continues, but measure our anticipated price entry and exit points within a larger time frame, or continue to monitor this 1 minute time frame. This 1 minute time frame should correct to around 6.20, both a 62% Fibonacci retracement level from this move off 6.11 and a calculated wave 4 level of the 5 wave 1 minute trend. Also watch for the 38% retracement level of 6.2582 to show resistance.
Since the larger time frames also show MACD signals that support this move higher we could try and anticipate a larger move if we think there is room to upside. The 200 day moving average is above the latest price move on these larger time frames and is now serving as support to the one minute time frame after this last move. Stocks at reversal points tend to trade towards there 200 day moving averages, up or down.
If we look quickly at the 5 minute chart and calculate that the current one minute 5 wave sequence will act as a wave one magnitude for the 5 minute chart (which has not corrected yet off the high of 6.35 or shown a MACD cross as of today), we would get a wave 1 magnitude of 0.24. Wave 5 target on the 5 minute chart, if these parameters hold true, and we resist breaking a tight sell stop of 6.10 to this trend, would be 7.01. About .10 over the 200 day moving average and into prior support, now resistance.
The trade analysis for DRH is being tracked in its trading alerts page.