The basis for why we perform technical analysis on the weekly chart first, even if we trade in a much shorter time frame is that first we have got to prove the trend.
How many times have you been watching a time frame and then you take an entry off a support or resistance line only to end up being bowled over by a price move you did not see coming? That occurs because the price moves external to the time frame you were looking at.
To steer clear of becoming tricked like this, you need to study a greater time frame in order to ascertain the trend. That's why we study the weekly chart to start with.
The weekly chart of the SPDR S&P 500 ETF (SPY) finished the week with a Bearish Engulfing candlestick. The MACD stays negative on the weekly stock chart. We too see a Bearish Head and Shoulders top forming and we are barely above the closing of the neckline for the right shoulder.
Going in closer on the daily chart, we understand that the neckline closes at around $104.75 . We also have the MACD crossing lower than the 0 line.
In half a shake the trader thobbit60 writes, "I see eye to eye with your bearish analysis. Thus why not short the SPDR S&P 500 ETF (SPY)?" No shorting SPY until the neckline is closed on the Bearish Head and Shoulders top. It also is sensible to get at the very least one day of confirmation beneath the break on rising volume. We know how alluring it is to jump early nevertheless you must try and be patient.
The hourly stock chart shows the sudden change in institutional investor opinion beginning last Monday, 06-21-2010. Why? What happened?
To answer that question you need to return back to the gap up on 06-10-2010. That bullish gap up happened as the result of weekly jobless claims dropping by the most in over a year. As a result the mass of market participants thought that the economy was still gradually recovering. But on 06-21-2010 that completely changed with the reports that housing construction is formally in a double dip.
While the week went on, additional bad housing news came by way of the plummet in home sales. Next GDP was revised downward. Being that housing is such a major part of our economy making up 70% of GDP, institutional investors realized that a double dip in the housing market can very well signify a double dip recession.
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