This post originally appeared on TraderPlanet.com.
A number of years ago I was fortunate enough to fly Virgin Atlantic’s Upper Class to London. It was a sublime experience.
Within two minutes of stepping on the plane I was fully reclined in a leather seat with a cold Red Stripe in my hand as attendants offered me “snacks” from the tapas menu. Everything about the experience, from the in-flight massages to the state-of-the-art entertainment system was incredible.
Even though the flight lasted over eight hours, the warm vortex of pleasure I was immersed in made it seem as if it just lasted minutes.
A couple of years later I flew to San Francisco in coach and just happened to have the spawn of Satan sitting in back of me. In addition to reaching around the side of my seat and pulling on my hair he made sure to continuously kick the back of my chair the entire length of the trip.
Even though the flight was less than an hour, little Damien made it seem like it lasted for days.
TIMEFRAME AND PERCEPTION
This is a great example of how different time frames and our perceptions of what is happening in those time frames can change based upon circumstances. And it’s no different in the markets.
For example, let’s take a look at the daily chart of the S&P 500.
This chart looks sweet. After jumping about sixty-five handles when the fiscal cliff deal was announced, price has consolidated right under resistance just like you would want it to. That tight range gives you a great risk/reward area to not only trade off of in the case of SPY, but also to gauge the overall health of the market.
A DIFFERENT VIEW
But now let’s look at a longer term chart.
Here we see a monthly chart of the S&P 500 going back about fifteen years. This chart is not so sweet.
You’ll notice that there is a double top, with the first occurring from roughly late 1999 to late 2000, and the second occurring in the infamous year of 2008. The area in-between the blue channel lines is the resistance that those tops have created, and it’s going to be tough to get through that area cleanly.
The idea scenario is that we move sideways for a few months before trying to break through that channel. We could even pull back to the black uptrend line as well and still be set up to make a run to all-time highs.
Of course the market is going to do whatever it wants, but it’s good to analyze it from different timeframes and perspectives to better understand the overall picture and adjust your trading accordingly.
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