Most investors have lives away from the markets and don't have time to monitor every short-term twist and turn. Even hardcore traders need to step back at times and watch the action from a distance. That's why strategies based on weekly chart analysis are so valuable, especially in the middle of the year, when volume drops and active trends become harder to find.
This long-term strategy filters out noise and gets you right to the big picture, where you'll find excellent trades that can be held for several months at a minimum. But caution is advised because wide swings between weekly bars can be nerve-racking. It will take considerable discipline to sit on your hands when things go against you, even when the trade works perfectly.
Effective long-term positions combine both technical and fundamental entry techniques. For example, limit entries to a basket of companies with solid fundamental criteria. Then build exposure using dollar-cost averaging, aligning partial executions with short-term breakout, breakdown and momentum shifts. Using this approach, you can buy strong stocks at very favorable price levels.
Long-term traders should perform a nightly review, just like short-term traders, examining progress and readjusting stop losses. Just don't place them in the same way as a day trader or a swing trader. Instead, keep them loose and out of the way of multiday trading ranges. That ensures they'll only get hit when there's been a real change in the underlying trend.
Let's look at the weekly charts of four
companies that show bullish price patterns despite the recent downturn. Just keep in mind we're watching and trading long time frames. You'll need to do your homework and remain patient, often waiting a number of weeks for a perfect buy or sell signal, before committing your capital to one of these large-scale opportunities.
rose from $20 to $96 a share in a seven-year rally that finally ended in 2007. The apparel manufacturer's stock bottomed out near $36 in late 2008 and resumed its upward trajectory, returning to within seven points of the high in May of last year and dropping into a broad consolidation pattern with support in the upper $60s. The stock turned higher in August and broke out about three months ago.
The uptrend peaked near $110 and gave way to a pullback that could fill the breakout gap (red circle) between $90 and $94. A decline into that price zone should offer an excellent opportunity for weekly traders to get on board, ahead of a continued uptick that pushes toward $130. Start positions as soon as soon as price dips into the gap, with additional entries down to the fill level at $90. Then get a stop loss under the 50-week moving average, currently near $88.
zoomed higher in a multiyear rally that ended at $54 in 2007. It plunged during the bear market, bottoming out near $11 in early 2009, and then bounced a strong recovery. The accessory maker's stock returned to the multiyear high in November last year, broke out, and then dropped into a broad consolidation pattern across the old resistance level.
The six-month megaphone pattern (red lines) tells us the stock is vulnerable to a deep pullback into the low $50s. Long-term positions begun once price drops below $55 should benefit from an eventual rally that reaches into the mid-$70s. Alternatively, a rally spike above $62 will clear the pattern resistance, signaling a long-term buy signal that weekly traders can utilize as well.
hit a six-year high at $25.47 in November 2007 and entered a long decline that finally ended at $8.25 in late 2008. The subsequent recovery returned to the high in February of this year and gave way to a breakout that's now lifted the stock into the upper $20s. The rally stalled four weeks ago, yielding a shallow pullback that's holding above support near $27.
A better buying opportunity will come when price approaches the breakout level (blue line). Interested long-term traders can start to build positions as soon as the data-storage company's stock drops under $26.50 and continue to buy all the way down to $24.50. The rising 50-week moving average is the line in the sand for the trade, with a breakdown through that support signaling the need for a quick exit.
hit a recovery high just above $40 in 2004 and pulled back in a long downtrend. The chip maker's stock returned to that level in 2005, 2007 and again in May of this year. The recent thrust to a new high, followed by a sharp reversal, shows that long-term resistance is still intact. This price action predicts a decline that should find support at or above the March low near $36.
Weekly traders can buy when price nears that level, or wait for a rally that clears the high at $43.28 because that will signal a breakout and the start of an uptrend that could reach the upper $50s. For now, just stalk the stock from the sidelines, watching how well it holds in the upper $30s. A three or four basing pattern in this zone could signal an early entry, ahead of a breakout.
At the time of publication, Farley 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.
Farley appreciates your feedback;
to send him an email.
click here to sign up for Farley's premium subscription product, The Daily Swing Trade, brought to you exclusively by TheStreet.com.
TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.