Thursday, January 23, 2014

The monthly chart II.

I have to admit that for a very long time, this time frame was never part of my daily analysis, and for a good reason, it does not help most of the time but when it does it can give some monster signals.

AAPL Had a multi-year move that was the envy of most companies, some folks were very happy holding it, some very unhappy because they sold too soon, some ended their trading carriers getting their shorts squeezed, others because they bought too late and were turned into bag holders.
Had we all paid attention to the monthly chart and some basic technical analysis, we would've had better results if we were paying enough attention when all three time frames flashed the short with gusto signal.

The purple arrows indicate trend pivots.



1: AAPL monthly chart displays the move from 308 to 708$ in 20 months.   
Back to the early stages, after some 5 month consolidation it breaks out to the biggest move from 430$ to 640$ That lasted 4 months.
2: Then pull back some as seen on #6 on the weekly chart.
3: The next move higher starts at 520 and ends at 705$. That was the top.
One of the most basic tools that technicians have on their toolbox when using charts is the ability to visually measure the slope or potency of each bounce and compare it with the previous one to identify strength or lack there off and AAPL Screamed trouble on its last move higher as its strength on the new move left much to be desired, if you saw that chart back then.
6: Shows the deep pullback on the weekly chart (it was expected after a massive 210$ move in such a short period of time).
7: Being that it was a deep pullback it bounced hard enough but couldn't retrace 100%. The bounce stopped short (that is what normally happens on deep pullbacks).
8: Had a shallow pullback to form a higher low pivot (HLP) Signaling highly possible higher prices ahead.
9: Broke out and closed 708$ New high.
10: Formed what some technicians call the NR7 or the smallest of that least seven bars after moving higher for eight straight weeks higher, the monthly bar #4 had the fourth green bar when the weekly chart gave the NR7 Signal, two red candles/weeks later had turned the monthly candle into a narrow body topping tail. 
On said top the daily chart had a head and shoulder pattern that triggered the sell off  (The right shoulder is basically a lower high putting the uptrend in question) once the neck line broke (solid support) there was nothing to stop the violent drop from both the monthly and weekly charts, price bounced back to now new resistance and declining 20 MA. Only to form a lower high pivot LHP. And continued moving lower. 
After that gravity took hold shown on #5.
Same thing happened on the weekly chart (It had a fractal or sideways H& S Pattern).
After an eight week drop, price closed below the HLP #8 And when price bounced it stopped at a now new resistance only to form a LHP And head lower, it tried to form a double bottom but the following bounce was weak, formed another LHP And kept going lower because the monthly chart was pulling the other two time frames lower.
Every bounce on the weekly chart was weaker and kept forming LHPs until the monthly chart finally bounced off its own support hard enough to form a potent bottoming tail.

Basically the decreasing slope on the monthly chart was the first and biggest signal, (having a signal means little, you need the triggering event). The final nine week's levitation to make new highs left no support underneath if prices were to drop, the NR7 combined with the fourth green candle turning into a topping tail on the monthly chart, the head and shoulders pattern that triggered the breakdown.
In the end when all sellers try to get out from a shrinking door, that is what happens, most parabolic moves end this way.



I'm posting this chart so you get an idea of what it takes to turn the monthly chart around.

1: After the top was formed as described in detail above. AAPL Kept falling for seven months, on the seventh month it finally bounced off support on that time frame, forming a giant bottoming tail.
Seen through the weekly chart the bounces kept getting weaker and kept forming lower high pivots LHPs under its declining 10 MA. When price finally had a big bounce as seen inside the black box, it was strategically the right time to bounce because before that bounce the monthly chart had a very big red bar, the potent bounce the last 1/2 of the month formed the bottoming tail on that time frame.
Seen through the daily chart it was a very potent bounce, it retraced 100% the big drop, looked like the longs were ready to go for a much bigger bounce after some consolidation, right?
2: NO. As potent as that bounce was, seen on the weekly chart price was never able to close above a LHP. the trend was still down. AAPL Consolidated for five weeks and the weight of the drop on both the weekly and monthly charts were felt again pushing price lower to test the lows.
Seen through the daily chart it had a deep pullback and the higher low bounce was weak thus forming a lower high pivot that sent price back to test the lows.
The month ended the day price formed the first green candle near the previous low seen on the daily chart, the next day and new month, price opened with a higher opening gap (green circle) and took off. Doing two very critical things:1 leaving space between the red and now new green higher low bottom of the following month's candle that turned out to be first big green candle and confirming the double bottom on the monthly chart.
2 It sent price above the 1/2 bottoming tail higher low double bottom on the weekly chart.
Price kept moving higher for two more weeks and the daily chart began forming  a HL. And a HH.
3: The black arrow points on the weekly chart to the area were price began to form a set up bar at resistance. Had that setup bar turned into a LHP. Given the right time, the odds of testing the  double bottom were very high.
Seen through the daily chart it was just a pullback with the trend in transition ready to establish its new uptrend.
This link explains the set up bar:http://chalannn.blogspot.com/2012/08/pivot-formation.html

4: Another higher opening gap closed the daily candle above the higher high pivot establishing a new uptrend and cancelling the danger of the set up bar as price kept moving higher on the weekly chart, the monthly chart kept getting bigger and greener.
5: The uptrend continued on the daily chart, now with the help of the larger time frames and price finally broke out.

All in all, the pullback was so violent that the monthly and weekly charts had to form a double bottom first and the daily chart had to establish an uptrend to get the larger time frames moving higher again.

Twice the larger time frames were flashing the short with a vengeance signal at the top and buy with gusto signal at the bottom  if you were paying attention.


Lesson#9: http://chalannn.blogspot.com/2014/01/the-monthly-chart-iii.html


If you want to learn more about time frame cycles read here: 
http://chalannn.blogspot.com/2012/08/time-frame-cycles-from-monthly-to-15.html 


Feel free to leave a comment. 


All charts were created with Scosttrade's  elite.

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