It's gets loud and noisy during a correction.
Weekly charts are a great way to turn down the volume and tune in to the essential technical data. This risk-cutting longer view
that others miss while chasing their tails, as markets spiral lower. It also exposes hidden leadership, allowing timing-conscious traders to walk a quieter path to profits.
To be sure, you can't just throw money at a long-term chart because there's a ton of space between price bars. That's why combining investor and trader techniques yields the best of both worlds. So, you can enter the position over a period of time, using dollar-cost averaging, but align your exposure with major support and resistance levels.
Reduce share size when taking long-term positions and then get out of the way. You'll find that volatility will shake out other market players, while your limited exposure keeps you in the trade, as long as broad technicals remain intact. Even one hundred shares, taken to capitalize on a well-organized weekly pattern, can book a very nice profit when held for a few months.
To get you started in the weekly trading game, here are four charts setting up for long-term trades in this challenging February market.
bottomed out at $24.51 in March 2009, then carved a broad cup and handle pattern, with resistance near $47. The stock broke out on heavy volume in November and hit $60, before topping out and pulling back with the broad market. It has slid for the past four weeks and now approaches weekly support at the breakout level.
You can buy the dips toward $47 in small pieces, until the stock establishes a well-structured basing pattern. That hasn't happened yet, and downside momentum might still drop the price as low as $45, before aggressive buyers return in force. Any selloff below that critical level will demand a quick exit from the trade.
JP Morgan Chase
has set up a bearish pattern that might precede a major selloff into the upper twenties. The stock topped out at $47 in October, then rolled over, establishing a trading range with support near $40.50. It broke that price level nearly three weeks ago, dropping to $37 on Friday; now it is ticking higher in an oversold bounce.
A pullback toward broken support can be sold short, ahead of a downswing that breaks last week's low. Note how the 50-week and 200-week moving averages have converged at $39.33. A bounce into that level can trigger the first trade entry, with additional pieces sold short, up to new resistance above $40.50. A stop-loss between $41 and $42 will protect the position from an unexpected recovery.
broke out above a multiyear down trendline in December and went vertical, rising from $21 to $33 in just two weeks. It topped out on Jan. 11 and has been pulling back for the past four weeks. It's now sitting on top of the 50-day moving average (not shown) and is starting to turn higher. However, weekly Stochastics predicts the stock hasn't yet hit the final low of this downswing.
Start small, and buy just a quarter to a third of the total position size each week that the price carves out a lower low. You won't get your full measure if a strong bounce starts ahead of schedule, but you can still capture a healthy profit. In this particular setup, support near $21 shouldn't be breached, so a stop-loss that gets you out of all shares can go under that level.
is an interesting short-sale opportunity for nervous traders who might get shaken out of more volatile positions. The stock topped out at $9.45 in September, after a six-month rally and carved out a lower high in November. It broke topping support near $7.70 last month and dropped to $6 around two weeks ago.
The progressive decline suggests the stock has entered a major downtrend, which could eventually test the bear market low at $3. Note how the 50-week moving average is sitting 40 cents below broken support. New short sales can be entered on a pullback into that level, with additional pieces added, if the uptick approaches the recent breakdown.
Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.
At the time of publication, Farley had no positions in any of the stocks mentioned, although holdings can change at any time.
Alan Farley is a private trader and publisher of
Hard Right Edge
, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of
, a premium product from TheStreet.com that outlines his charts and analysis. Farley has also been featured in
. He has written two books:
, due out in April. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
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