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home | Monthly Chart Tops

Step 2: Improve Attention to Detail (Monthly Chart Tops)

by Erik Grywalski

Note:  The historical stock example given below is for EDUCATIONAL USE ONLY.  It is NOT to be used to make buy/sell decisions in today's market.  For more information, please read the HSR Terms of Use.

Any distribution or change in direction behavior that's seen on a weekly chart can also be found on a monthly chart.

In many cases, a monthly chart will give you a big picture overview and it may even add confluence to other signals seen on lower time frames.

Also, because monthly chart signals take longer to develop, they can be less prone to whipsaws.

Here are two common monthly chart topping signals:

1.  First Close Below the 12 Month Moving Average (MA)

Price closes below the 12 Month MA for the first time since beginning its uptrend.

2.  First Swing Point High (fSPH)

Price closes below the low of the high month for the first time since beginning its uptrend.

Use of Confluence May Better Pinpoint Reversals

Using each signal by itself may help you spot tops in stocks, but combining both can be helpful in minimizing ill-timed exits due to false signals.

Of course, there may be a trade-off.

Exiting solely on a fSPH signal can get you out of a topping stock earlier, but it may also make you more susceptible to false signals.

When a fSPH signal fails, price confirms a fSPH, but then goes back to new highs without confirming the first close below the 12 Month MA.

For this reason, you may want look for confluence with either of the following signals:

  • fSPH AND First Close Below the 12 Month MA
  • SPH AND First Close Below the 12 Month MA

Let me show you a historical example so you can see how confluence may help you:

Historical Stock Chart Example:  Hasbro's confluence at 1986 Top

Click to enlarge

Did you notice how the monthly chart set up is very similar to the fSPH signal on the weekly chart?

In both time frames, the addition of a moving average gives you more confluence.

To learn from failed signals, please >>CLICK HERE<<