Monday, September 6, 2010

Chart of the Week: The Monthly SPX

Most of my trades have a tendency to last from a couple of days to a couple of weeks, so as a result I tend to spend almost all of my time looking at charts with daily bars or intraday bars. As a consequence, I find that I run the risk of not focusing on long-term trends.

One of the ways I try to overcome trading with short-term blinders on is to force myself to study some weekly and monthly charts. I find that particularly when markets seem to be at potential inflection points it pays to take out that wide-angle lens and step back for some additional perspective.

This week’s chart of the week is an attempt to do just that with the SPX, using monthly bars going back to 1998 to put the last few months into historical context. What I see is a classic bullish bounce off of a cycle low that has now advanced just shy of the 50% retracement level. Stocks have been consolidating for the past 4-12 months, depending upon one’s perspective, and are likely going to soon be choosing whether to continue upward above the 1220 level and establish some new bullish momentum or fall back below 1010 and make a run in the direction of 666.

The longer time horizon does not necessarily make it any easier to discern the direction of the next big move, but it does a better job of laying out the battlefield and where both bulls and bears should be able to declare victory.

Keep in mind, of course, that it is the victors who get to write history…

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