Timeframes Colliding

  • Posted by
  • on March 22nd, 2011

After starting last week controlling risk and ending the week embracing it, I’ve been mostly inactive since exiting remaining trading longs Friday morning.  I had no idea what to expect for Monday, and my plan showed a lack of clarity.  My planning is clear today, but still not quite ready for action.  Instinct tells me we’re about to see the end of this (impressive) bounce from the lows, but that’s a crowded idea and until I have some evidence that the rally is being rejected I’m sitting still.  As Zortrades said last week, no shorting for 3-5 days after a low…I follow the same rule.

The source of my confusion is a conflict between the short and intermediate time frame.  Both the indices and my breadth stats peaked, weakened, and continue to point to lower prices over coming weeks.  However, there has been no evidence of selling pressure in the past few days.  This conflict tells me to wait.  Buying panics for long trades in Sectors ETFs like $XLE and $FAS was fine last week, but now with mild conditions I have no play other than to let the short-term exhaust itself and the intermediate term to regain control.

Why care about the long-term?  Well, I believe the purpose of my intermediate and long term work is to tell me whether the bull or bear side is more likely to result in a tail event.  And without capturing a big tail now and then, I’m simply spinning my wheels to capture enough pennies to overcome transactions costs.  I need some winners, and big ones at that.  I don’t care if it’s 1 in 4…my results will be determined by my biggest winners and losers, so I like the tailwind of longer timeframes to increase my expectancy.

Why worry about the short-term?  If I’m going to stick around long enough to catch a big move, it helps to get off to a good start.  Both financially and emotionally, the closer I get to the actual “perfect” point of entry the more likely I am to be calm, cool, and collected; in other words, patient and disciplined holding a winner.  Seeking perfection is absurd, but that’s no excuse for sloppy entry.

With unanimous bearish stats in my longer-term work, and unanimous bullish stats in my shorter-term work, it’s best I sit and wait.  It would take a whole lot more to reverse the longer-term structure(obviously), so I’m now in a detached stalking stage waiting for a sign that some major stocks are able to sell off for more than 30 minutes.  Ripples of selling will come in before any major waves take charge, so I’m stalking my Leaders List for early signs of shifting energy.  If that evidence comes, I’ll dig deep into my scans to see which stocks look ripest for the next break.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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