The monthly charts aren’t saying anything. Charts can’t speak remember? It’s up to us to take the behavior of the market and come up with our own interpretations of what is going on. There is no easy way to do this, just a lot of wrong ways. To help us continue to stay on the right side of the market, we always need to reevaluate the circumstances and come at it from all sorts of different angles. Usually we try and do that by incorporating International Indexes and Intermarket relationships into our process. Time, however, is probably the best tool we have in order to accomplish this. Using multiple timeframes throughout my process is the best way I know how to identify the direction of the primary trend. It’s hard to miss it when you’re consistently using Daily, Weekly and in this case, Monthly charts in your approach.
I have a lot of Monthly charts, as you can imagine. But the truth is that for this particular segment I try and focus on the message of the charts as a group. This exercise also really helps point out certain trends that you may have missed had you only gone back 5-10 years. These monthly candlesticks also tend to tell a story. So there are a lot of benefits in reviewing monthly charts at least once a, well month, because those are the only times they change. Even if you’re not a professional, going through monthly candles once a quarter is probably a good idea. I encourage everyone to incorporate this somehow into their process.
Here are some of the things that stand out to me in the this Monthly Candlestick Review:
This is the S&P500 and this month had something of a doji, where the close was near where it opened to begin the month. Traditionally this is evidence of indecision and normally seen at turning point. The positive here is that it went out near its highs and did close at a new all-time high. When stocks close at a new all-time high (the highest closing price ever), it is by definition not a downtrend. As I’ve been saying, if we’re above that 2400 I think we need to continue to err on the long side for sure. This month it reiterated how important that level is and retested it successfully. Not a bad thing.
That 3000 target still stands out for the S&P500. The 300 point base throughout 2015-2016 gave us a measured move target to around 2400. That was achieved and now exceeded. So if we are above that, we want to be big time long.
You can make pretty much the same case in the Dow. The 2800 point base gave us a target of 21,000. That was hit, digested for a few months and then proceeded to to new highs this Summer. 25,000 is still where we think it’s going and we want to be long if we’re above 21,000.
In both S&Ps and the Dow the risk is really well-defined. I mean, if we are below those levels, then there is something seriously wrong with our bullish thesis. I don’t see a scenario where Semi’s are taking off with Tech, Healthcare and Banks ripping to new highs if S&Ps are below 2400 and Dow Industrials are below 21,000. So while the S&P and Dow are 2 indexes we obviously give a heavy weight to, currently more than ever we are leaning on these indexes for risk management purposes.
With that in mind, look at Transports. With my eye it looks like former resistance is turning into support. No?
Here is the Nasdaq Composite. Does that look like a major top? or a clean uptrend?
Now let’s put in some levels and see what we’ve got. That 6200-6250 area was the measured move from the base, similar to the Dow and S&P above. So like them, if we’re above that, we have to be long right? The next levels I see are above 7650
What about the Russell2000 Small-caps? Look at this nasty line up there. That doesn’t make you feel warm and fuzzy. But what does it mean? The market has certainly respected it thoughout the year hasn’t it?
What if we looked at it like this? Does this make more sense? Former resistance turning into support, within an ongoing uptrend? It did close just 1.4% from last month, which was the highest close in the history of the index. Are we going to crucify it for that? I won’t. I still think we’re heading towards 1700
Here are Micro-caps. As you can see in December we hit our 161.8% extension target from the entire 2007-2009 decline. After 8 months of consolidation, do you think we’re ready to move on? If we are above $86, it’s hard to be bearish. This month’s candle is indicative of strength for sure
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