BTU: Trade Set Up


When I look at any blank chart, I try to envision whether or not a particular market might be setting up using my methodology. If it looks interesting enough, I will start to analyze both the time and price axis of that chart. Peabody (BTU) looked pretty interesting to me after a relatively healthy decline, so here is what I found.

First since BTU has been trading down recently, I want to know if running Fibonacci timing cycles would suggest a possible low anytime soon. I ran a timing histogram on the program I use that identified February 11-15 as timing for a possible low using calendar day projections. I also ran quite a few trading day cycles which came due between February 8-14. These cycles and the histogram are illustrated on the daily chart below. (Trading day cycle projections vs calendar day projections are typically only a day or so different except when comparing much larger swings in time.) When I see a clustering of Fibonacci time cycles I know that the odds for a reversal of whatever the current trend is at that time are higher than usual. Since we are trading down into the time cycles I'm looking for a reversal back UP.

Now let's look at the price axis of the market next. On this daily chart I ran all possible Fibonacci price relationships from the key swing highs and lows labeled on this chart. The price relationships include retracements, extensions and projections. Running these relationships identified a key price support zone at the $22.02-$23.31 area. BTU is currently testing just above the top end of this zone with Friday's low being made at $23.36.

With both time and price parameters coming together for a possible low, the next step is to dial it down to a 15 or 30-minute chart to look for a trigger that would tell us that it is worth placing a bet on the buy side of this stock in this next week.

For more information of using triggers with my work, please refer to this article that includes the guidelines:

If a buy trigger fires off, the maximum risk on the trade can be defined below the low end of the price cluster zone at the $22.02 area. The upside potential if the trade starts to play out would be around the $31.00 area. Let's see if we get our reversal indications or not and then trade this accordingly.

OptionsProfits can be followed on Twitter at

Carolyn can be followed on Twitter at

Read the full story and get access to the Real Money Pro trading floor.

There’s no substitute for a trading floor to get great ideas, so Jim Cramer created a better one at Real Money and blogs there exclusively. We then added legendary hedge fund manager, Doug Kass, with his exclusive Daily Diary and best investing ideas. Staffed with more than 4 dozen investing pros, money managers, journalists and analysts, Real Money Pro gives you a flood of opinions, analysis and actionable trading advice found nowhere else, and allows you to interact directly with each expert.

Already a Subscriber? Please login.

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.