A Weekly Setup and the Monthly Chart

The rally on the daily chart has now reached the point where the close was above the identified “stop” level of 1143.60. Of course, only those who shorted the market on the close of bar #13 and ignored the weekly chart would have been stopped out with a loss. So perhaps this is an example of why the developments on a higher time frame are important.
Speaking of which … the weekly chart made combo bar #12 this week. Besides that, the ‘question to ponder’ posed yesterday spoke of the latest weekly bar becoming #9 in a new Setup sequence. So which is the active setup? The new 9 bar series from mid-November or the currently active series from mid-July (where the current TDST Support line is)? The latter, since the new setup is less than 100% of the old one. In fact, the current setup is not even 38.2% the length of the first. Next week may become combo bar #13.
But there is more to the story. Recall that anytime you reach Setup bar #9 you have a buy or sell opportunity. In this case, on the weekly, it is a potential sell “setup”. Should one take action on this development? There is no easy and always correct yes/no answer but I do have a methodology to tackle the problem. As always it begins with a look at the next higher time frame chart which must support the decision, and so that leads us to the monthly chart (shown).
Unless we close January below 1057.08 it will become bar #9 in a sell Setup. More importantly, this will be a ‘perfected’ setup in that the high of bar 8 or 9 is higher than the highest high of bars 6 or 7. Therefore, until the market closes below 1057.08 the monthly chart supports taking a short position on the weekly chart.
Back on the weekly chart we want to see setup perfection as well; and it does in fact exist. There are more “tests” that must be performed on the weekly chart before a final decision is made and I will cover those tomorrow.