The Advantage Of Looking At Longer-Term Charts

• April 14, 2003
• Dave Floyd

I thought I’d share a few specific
charts I’ve been monitoring lately, and as you will see, they include monthly,
weekly, daily and 120-minute time frames. New daytraders that come by the office
often ask, if you are a daytrader, then why study the weekly or monthly
charts? Besides the fact it gives me a better perspective on the market, it also
allows me to orient some (not all) daytrades around long-term
breakouts/breakdowns.

For example, when a stock begins to
break through a critical weekly or daily support level, I am not only
positioning myself for a possible long-term trade, but I am also trading the
short side actively (“scalping”) intraday. It gives me a tradable expectation
that I can use to enhance my intraday trades. Additionally, it gives me an
end-of-day income that is complemented by a position that may take a few days or
weeks to play out. Of course, the stops and position sizes for each time frame
will be different and will correlate to the intended holding period and the risk
I am willing to stomach. 

Without ado, here are several charts
that I am stalking carefully, and I trust they will also help you, no matter
what time frame you happen to trade.

First, let’s start with 120-minute
charts of the S&P and Nasdaq futures below. If you haven’t noticed by now, the
Nasdaq is leading this market lower, and if the downside momentum gathers, techs
look like the place to be short.

 

Below are the biotechs from a weekly
perspective. BBH and AMGN are both wedging higher on progressively lighter
volume. AMGN has a long-term Fib level at 60 even. So far they have held in
well, while the market hasn’t, though, so don’t step in front of a moving
train. I put these in here so you can be alert for any reversal patterns,
particularly if confirmed by a strong move lower in the indices. For now, the
path of least resistance is up, just be on your toes. 

Here is a weekly chart of the Gold Bugs
Index ($HUI.X) and a monthly chart of NEM. For you Ellioticians, several months
ago gold stocks completed what can best be labeled a wave 5 up after a breakout
from a wave 4 corrective triangle, and they are now transitioning into long-term
down or sideways trends. Definitely short material, although in the near-term
they are very oversold and appear to be trying to find a bottom. The 116 level
in $HUI.X is critical support. In NEM, 25.00 – 25.10 will be critical; a break
through this puts the odds in favor of testing 22.75.

Below is a daily chart of the 30-year
bond stock proxy, TLT. This, too, has completed what is best labeled as a
long-term wave 5 up after a breakout from a wave 4 triangle, and it is now in
the process of a longer-term correction. I have labeled what the most reasonable
Elliot wave count would be (and do so because the waves are fairly clear, when
in doubt I step aside). What you can see is that TLT appears to be in a wave 2
A-B-C correction after an impulse wave 1 down. At any rate, I will be looking
for shorting opportunities here on any rallies into Fib resistance, particularly
into the 89.00 – 89.30 zone, which coincides very closely with the highs in
November and December of 2002. 

Lastly, I have included a daily and a
120-minute chart of AIG. On the daily, note how last week AIG tagged a
resistance trendline, tailing off, and also failed to close over the 50%
retracement of the November 2002 high — March 2003 low (at 59.60). On the
120-minute, you can see AIG is testing the support trendline drawn off the March
12 low. If this breaks, 51.57 is the next support level, which is both a Fib
retracement as well as an opening gap number. Below this, there is a strong case
for filling the gap, which would take AIG down to 50.80. As you can see, there
are potential trades setting up on both daily and 120-minute time frames here. 

Have a great trading week, and if you
have any questions or comments, or would just like to talk technical analysis,
feel free to e-mail me at

bo@aspentrading.com.

Bo Harvey

KTNs below: