I review the hourly and daily charts after the end of each session but on weekends I include a review of the longer term charts such as the weekly and monthly charts. Understanding price action on the longer term charts adds important context to the shorter term chart price analysis. I use the next few charts to demonstrate the point. Below is the SPX daily chart. Price found support at the rising lower band of the 8-day SMA. That is typically good location for initiating a long position. If you look closely at the lower band you’ll see that, even though it’s been rising, it does appear to be flattening somewhat. That could indicate a loss of upward momentum. It’s something to keep in mind but it’s not a bearish sign yet since if price does rise from here that lower band will turn up again. Just keep it in the back of your mind for now. 🤔 Friday’s close was also above daily HB (Half-Back or the midpoint of the price range). All in all it appears to be a bullish scenario as long as price finds support on any Monday pullback in the 4523-28 support zone. The next higher target would be last week’s 4572 HB. Above that appears to open up a retest of the 4637 high. But wait…maybe we better look at the weekly chart before we give SPX the all clear signal!
Below is the SPX weekly chart. In contrast to Friday’s potential bullish reversal daily candle the weekly candle looks like a potential bearish reversal candle! The HB zone will provide resistance against any SPX rally. I’ve added the 78.6% retracement to the HB zone (50%-61.8%) retracement just as a reminder that SPX (as well as SPY and /ES) will often push through the HB zone only to be rejected at the 78.6% retracement. So how will I trade these 2 conflicting signals?
First step is to put the weekly resistance drawing on the daily chart. 🤔 My triggers for initiating a trade based on a chart is found on a lower timeframe chart. So if I’m trading the weekly resistance levels I need to see those levels on the daily chart or even the hourly chart. Now, even though Friday’s daily candle was a potential bullish reversal the pathway to higher prices doesn’t seem as clear! That doesn’t mean I can’t take a long trade. HB zone support from Friday’s daily candle is in the 4525 area so I could add long Deltas there (with a stop below 4507) and then be looking to DH (Delta Hedge) the long position in the 4572-88 resistance zone from the weekly chart. That would be about a 50 point move higher which could offer a nice profitable trade. If price did reach the 4575 area I’d then be looking for a bearish reversal on either the hourly or the daily chart to potentially add short Deltas to my portfolio. Since any short position added there would be based on the weekly chart resistance area I’d typically use longer DTE (Day’s to Expiration) trades than I would buy based on daily chart support zones.
Questions? Comments? Let me know below or on the twitter feed. Have a good week!