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.

Weekly Chart

With yesterday’s up trending day the market has still not flashed a conservative entry signal but is still below the stop loss level (daily chart). The weekly chart (shown), meanwhile, is not supporting a short entry on the daily. Unless we close below 1126.48 today the weekly chart will make combo bar #12 this week. In a nutshell, this means that a short entry would be risky right now and ideally should be deferred at least one more week. I like to see the chart of one higher time frame supporting the next lower chart. Does this mean that the market can’t go down here? No. It just means that the higher level trend does not support the idea of taking action right now. It is purely a matter of risk.
Question to ponder: This week looks like it will also become setup bar #9. This raises the question: Which will be 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)? Answer next posting.

Daily Sequential and Combo 13 Reached!

Hi! We have just reached the 13th bar of both sequential and combo on Tuesday. If one were to use this sequential to short the S&P500 then the question becomes "when do I enter the trade?" The riskiest trade would be on the close of bar 13.
The associated stop level to use would be the level calculated with the highest true high of combo and sequential -1143.60, the horizontal dashed cyan line.
A more conservative entry technique would be to wait for the first price bar, subsequent to bar 13, which has a close lower than both the open and the previous day's close. We have not seen that yet. Still more conservative would be to wait for a TD Setup price flip.
Beyond the entry ..... should one take the short trade at all? This introduces the idea of using the higher time frame charts to filter the daily chart trades. I will take a look at the weekly chart in my next post.