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CYCLES


A Possible Swing Trading Method For Pfizer

12/11/12 08:27:45 AM
by Donald W. Pendergast, Jr.

Shares of Pfizer, Inc., have been surging higher since mid-November 2012. Can the stock break above its previous high of 26.09 sometime between now and late January 2013?

Security:   PFE
Position:   N/A

As expected, shares of Pfizer, Inc. (PFE), pulled back in late October-early November 2012, offering savvy traders a low-risk buying opportunity. This was highlighted in my previous Traders.com Advantage (TCA) piece on Pfizer, entitled "A New High For Pfizer, But A Pullback Awaits."

Since making a multicycle low on November 15, 2012, at a price of 23.55, PFE has managed to tack on gains of nearly 9% during the past three weeks, and with its cyclical, money flow, and relative strength studies all suggesting that this big pharma giant still has plenty of room to run higher in the next four to seven weeks, this could be a good time to consider a variety of short-term bullish stock strategies in PFE. Here's a closer look now (Figure 1).

FIGURE 1: PFE, DAILY. When a stock has already had a nice rally after a major low, dropping down to a 30- to 60-minute time frame can help traders pick lower-risk entry spots in equities that have very bullish near-term technicals and fundamentals.
Graphic provided by: Sentient Trader.
 
Pfizer can make some nice, long-term trend moves, and even though it usually doesn't move anywhere as fast or as far as a big-cap tech name like Apple (AAPL) or Google (GOOG) can, it can still be a great stock for swing and/or position traders to play with.

PFE recently broke above its 38-day valid trendline (VTL) confirming that the November 15th low was of an 80-day cycle magnitude, and with the stock's long-term money flow still well above its zero line (based on its 100-day Chaikin money flow [CMF][100] histogram), all that an enterprising swing trader needs to do now is wait for a suitable pullback toward that particular VTL, followed by a mechanical buy signal -- one based on a previous intraday swing high.

FIGURE 1: PFE, 30-MINUTE. Buying breaks above prior swing highs after successful tests of intraday support are completed is only one of a myriad number of ways to take advantage of multiday price swings in liquid stocks.
Graphic provided by: TradeStation.
Graphic provided by: Trading Alchemy Trend Catcher.
 
In Figure 2, you can see how a simple intraday system could be created; this example uses the Trading Alchemy Trend Catcher, with input settings of 10 (lookback period) and 2.382 (factor). The big idea is that once you've determined that a stock (preferably a liquid large-cap issue) has these qualities:

1. High four-week relative strength vs. the .SPX
2. A confirmed multicycle low already in place
3. Decent earnings growth rate
4. Positive long-term money flow (CMF)(100)

If a stock has all of these desirable attributes, plot a 30-minute TradeStation chart of the stock and add the Trend Catcher indicator (with the same settings previously mentioned). Once the Trend Catcher (TC) already indicates that an uptrend is in force (the bars will turn an aqua color), simply wait for pullbacks that terminate and reverse higher just above the TC trailing stop (dark blue dots). Then wait to see if the prior swing high before the pullback is reached; go long a tick or two above that high and simply hold the position until stopped out by the TC trail.

If you are an aggressive trader, you can do this several more times, depending on how powerful the underlying cyclical forces are driving the stock. In this example, two hypothetical entries have been allowed by this method, with both positions still open. This simple, momentum-based method, once you work with it, can prove to be an extremely effective way to trade on a 30- to 60-minute time frame, especially if you can accurately confirm that a major cyclical low (the more cycles, the better) has actually been made before you start going long like this.


Account risks for such a method should be kept small -- preferably 1% of the account value (and preferably less), particularly since this method can and does involve overnight holding of positions. Trade wisely until we meet here again.



Donald W. Pendergast, Jr.

Freelance financial markets writer and online publisher of the Trendzetterz.com S&P 500 Weekly Forecast service.

Title: Market consultant and writer
Company: Trendzetterz
Address: 81 Hickory Hollow Drive
Crossville, TN 38555
Phone # for sales: 904-303-4814
Website: trendzetterz.com
E-mail address: support@trendzetterz.com

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