Why You Should Look At Multiple Time Frames

April 8, 2003
Kevin Haggerty

All of
the early price gain yesterday was once again due to the pre-market futures,
which accelerated the gap opening, not
the Generals buying lots of stock being that no more than 10% – 15% of a big cap
stock’s average daily volume is executed on the opening. Last Wednesday was the
same type of opening and price went sideways for the remainder of the session.
Yesterday was a windfall for volatility band traders who were not reluctant to
take a second entry. NYSE volume was 1.45 billion, a volume ratio of 63 and
breadth +887.

Yesterday’s 2.0
volatility band for the SPX
(
$SPX.X |
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PowerRating) was 903.04 with the 200-day EMA just
above at 907. The index hit 897.09 on the opening bar vs. the 878.75 close on
Friday. The SPX hit 903.33 on the 9:50 a.m. ET bar, then reversed the 903.04 2.0
volatility band to a 900.30 low on the 10:05 a.m. bar. If you took the initial
trade on the reversal below 903.04, you probably got stopped out with a small
loss or a scratch depending on your stop.

You got a second entry
very quickly, as the SPX traded up to a 904.89 intraday high on the 10:15 a.m.
bar, but then you got a second reversal below the 2.0 volatility band on the
10:25 a.m. bar, and the SPX never looked back, as it traded down to an 879.93
close. If you didn’t play the volatility band trade, you got another good trade
setup from the Slim Jim setup between 897 – 894 which stretched from 12:00 p.m.
to the breakdown on the 2:25 p.m. bar. If you didn’t take the Slim Jim trade,
then go back and review both the

Slim Jim module and the

1,2,3 module.

You are correct. There
was no defined 1,2,3 short setup on the five-minute chart, but you probably
forgot to check the daily SPX chart. Once price went above the double 895.90
highs on March 21 and March 24, that set up a potential 1,2,3 higher top, or as
some of you like to say, 1,2,3 Shake & Bake. After the rally from 788.90 to
895.90, the SPX broke that up trendline, trading down to 843.68 on March 31,
which fulfilled the first requirement.

Yesterday it traded above
the 895.90 high to 904.89, then reversed the 895.90 high to the downside, which
was the initial entry. When you looked at your five-minute chart, you saw the
Slim Jim, so you simply deduced that you would wait and play the Slim Jim
breakout below 894 because it was an intraday short pattern confirming a daily
chart 1,2,3 higher top pattern. The trade logic was basic, defined, but
powerful.

The
(
QQQ |
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PowerRating)s gave you
an excellent Slim Jim entry below 26.80, which traded down into a 26.09 close.
The QQQs had opened at 27.11, hit an intraday high of 27.20, then reversed the
2.0 volatility band at 27.04, but did go sideways into the Slim Jim between
26.90 and 26.80 from that same 12:00 p.m. until the downside breakout on the
2:25 p.m. bar. I have included a weekly chart of the QQQs in today’s commentary
which depicts the current 1,2,3 higher bottom that has formed after breaking a
two-and-a-half-year down trendline. Money will be forced in above the 28.79
1,2,3 trend entry. The QQQs have been rangebound between 28.79 and 23.32, which
is the .618 retracement to the 19.76 October low. The QQQs closed right on the
longer-term moving averages and just below a September 2001 low of 27. Remember,
intraday patterns should always be looked at in conjunction with the longer-term
charts for confluence.

I have also included the
weekly chart of the
(
BBH |
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PowerRating), which had pulled back to a 95.20 close. The .38
retracement level is right below at 94.26, and the 10-, 30- and 40-week EMAs are
right below that. The other chart is
(
GILD |
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PowerRating), which is an example of a
strong stock with big institutional sponsorship, and lots of hedge funds
involved. That means it goes on your intraday scrolling list.