Using the weekly chart to make sense of price action on the daily chart.

This lesson explains why most folks stay away from consolidations and chase momentum. 
There are great rewards awaiting for those that understand the interaction between price and the trend on different time frames.
It looks hard but once you see how the next bigger time frame affects the next lower TF. The technical picture becomes more clear.
It could be the 15 minute chart affecting the 5 minute chart, it applies to all time frames.

The resolution of triangles (symmetrical, ascending or descending) IMO Is the best way to analyze price action inside congestion.  

The monthly chart is just as important, I'll post an in depth analysis if I get some requests.

Grab a cup of coffee it will get???? 

If you are not familiar with trend pivot formation read this first:
 http://chalannn.blogspot.com/2012/08/pivot-formation.html

1.The daily chart is in a downtrend judging by price being under its declining 20 MA. 
2. A big bottoming tail forms on both the weekly and daily charts, after that, the bulls were unable to keep price moving higher, although the weekly chart overall is in an uptrend but in the middle of a very deep pullback (basically neutral) Thus needing more time to fix itself with a longer consolidation.
Back to the daily chart inside the now trend less state, sellers push price back down to.
3. Test the big Bottoming tail (#2) the selling stops again, price has a tepid bounce that forms a LHP And sends price lower again closing below the higher low, now has a lower low, this stock looks like it will continue going lower if it closes below #2
4. A higher opening gap closed above the first lower high pivot (LHP) And the next bar closed above the next pivot and big area of resistance, this stock is ready to re-establish it uptrend, it needs one more higher high low and one more higher high. 
Back to the weekly chart: All the action described above forms a bullish engulfing bar on the weekly chart, that green bar completes the HLP. But price is near resistance, that resistance stops price, forms a lower high pivot LHP. Sending price lower, thus the hard pullback on the daily chart after a brief consolidation.
5. Remember that for the larger time frame to move higher the next lower time frame needs to move higher first, on this case the daily chart forms a higher low and begins to move higher thus forming a HL. On the weekly chart, this is your first signal that price is moving higher in both time frames.
Because the weekly chart has no clear trend after that hard pullback from its highs, once the tepid bounce forms a LHP. Gets established the odds are high of lower lows but if the buyers step in and form a double bottom or HL. Now the odds are high that price will move higher. (Each side is always testing each other, leaving footprints behind AKA Trend pivots)
6. On the daily chart price moves higher to that little area of resistance where price stops and goes lower in a controlled way and stops above its rising 20 and 40 MA. And on cluster support.
7. Forms a HLP (cup and handle pattern) Sending price higher to close above the double top.
After a long consolidation the bears try one more push lower but the HLP. Bounced price back, by the end of that day price closed above its rising 20 MA. With a bottoming tail, now the direction was clear for all to see.
8. On the weekly chart price closed above its lower high pivot but near resistance.

1. Once price tests weekly resistance, it gives the chance to longs trapped before the hard drop to get out at break even and they take it, sending price lower, the pullback on the daily chart gets deep because the weekly chart is controlling this pullback, meaning that price will stop on support on the weekly chart.
2. Price finds support #3.
4. Will price fall down to the next lower support area? Anything is possible.
Count how many higher lows and higher highs it has on the weekly chart? If you said it has two higher lows and one higher high, you are correct. It only needs another higher high to try to re establish its uptrend. The bulls are not going to give up that easily. The odds favor another leg higher because it's transitioning from sideways to uptrend.

1. Time for a test. On the first chart how was the double top (#6) on the daily chart resolved?  How do you think the double top on the weekly chart (chart above) will be resolved if the pullback is controlled?
2. Same thing happens (cup and handle pattern) on the weekly chart, seen through the daily chart, price moves below the big bottoming tail thus taking all stops immediately finding buyers, next day crating a bullish engulfing bar and consolidates next 10 days.
Will that Bottoming tail create the set up bar on the weekly chart? Do you see where I'm going with this? On the daily chart for the next 10 days price just consolidates but the weekly chart is forming a?
3. On the weekly chart price keeps moving away from the set up bar after a small consolidation, seen through the daily chart forms a HL (blue circle) is the entry signal anticipating that the HLP. On the weekly chart will complete and price will begin its next leg higher? Because it has two higher lows and one higher high this next leg higher could be the next higher high. The risk reward scenario says it is a valid entry.
4. Price completes the second higher high. Now the uptrend gets established.
5. The weekly chart is getting extended and needs to rest if the bulls want to keep it moving higher.

1. After the extended move higher price consolidates for two weeks, the odds are high that it needs a pullback on its weekly chart. On the daily chart a violent drop gets bought by folks buying the dip, turns into a bottoming tail and HLP. That HLP Above its rising 20 MA. Signal higher prices if not violated..
2. On the test of the HLP. And R20 MA. Price forms a double bottom that ignites a powerful breakout but its weekly chart remains even more extended.
3. Next day a monster bearish engulfing bar traps many longs, forcing massive selling, inflicting a big technical damage to the uptrend.
4. Bearish consolidation at the bottom of the monster red bar forms a LHP. And the shorts take over.

How often does the weekly chart trades under obvious support takes stops only to form a higher low pivot and keep moving higher? Very often, 
Take a look at the weekly charts of the SPY, QQQ And IWM On the third week in January 2014 and ask yourself what is set up that is forming?
Or just look at the same time frame all 2013 and look for the HLP and the upward continuations that followed.
Large moves ignite and keep going this way as long as the weekly chart is in an uptrend and rested.

The main points to take IMO. 
1: In an uptrend or anticipating an uptrend once resistance gets tested it sends price lower but if the pullback is controlled the next surge will overcome that resistance thus the popularity of the cup and handle pattern.


2: in an uptrend or anticipating an uptrend, when you see that the formation of a HLP. Only needs one more bar to be completed, if price is near the set up bar and you enter long, place your stop under the set up bar because the risk reward is enormously on your favor.

3 Use both time frames to identify the hidden money making clues.

It looks hard but once you see how the next bigger time frame affects the next lower TF. The technical picture becomes more clear.
It could be the 15 minute chart affecting the 5 minute chart. It applies to all time frames.

Lesson #7: http://chalannn.blogspot.com/2014/01/the-monthly-chart.html



There are in more depth lesson on the first posts. 

Feel free to leave a comment. 

All charts are source: www.eSignal.com