Chartists looking to increase their odds should consider two timeframes for their analysis. The longer timeframe sets the strategic tone, while the shorter timeframe defines the trading tactics. Strategically, I am interested in stocks with long-term uptrends. Tactically, I am looking for bullish continuation patterns to trade after a correction. Let's look at an example using Northorp Grumman (NOC).
The chart below shows weekly candlesticks extending back to summer 2021. NOC advanced from 350 to 550 (+60%) and hit a new high in October 2022. The stock then fell sharply at the beginning of 2023 and proceeded to drift lower into October 2023. Overall, a triangle of sorts took shape as the decline retraced around 61.8% of the prior advance. Also notice that NOC returned to the prior breakout zone. The retracement area and broken resistance created a support-reversal zone (red-green line). NOC broke out with a big surge in October (green arrows) and this move reversed the long-term downtrend.
The bottom window shows the percentage difference between the close and the 40-week SMA. The horizontal lines are at +5% and -5% to filter signals. A move above +5% signals an uptrend and remains until a move below -5%. Notice how the indicator moved below -5% in early 2023 and remained bearish until October 2023 when it surged above +5% (gray arrow). This indicator is also long-term bullish. This indicator is part of the TIP Indicator Edge Plugin for StockCharts ACP.
With the long-term trend up and a breakout on the weekly chart, we can turn to the daily chart for tactical decisions. This section continues for TrendInvestorPro members. The Chart Trader offering at TrendInvestorPro provides broad market analysis and carefully curated trading setups for stocks and ETFs. We focus on bullish continuation patterns like the one above. Reports are published every Tuesday and Thursday before the open and each report includes a video. Click here to learn more.
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Choose a Strategy, Develop a Plan and Follow a Process
Arthur Hill, CMT
Chief Technical Strategist, TrendInvestorPro.com
Author, Define the Trend and Trade the Trend
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