Multiple Time Frames; Different Outcome
Over the last couple of weeks it seems like the markets have definitely made up some ground, but with all this volatility it is kind of confusing trying to see how much ground had actually been made up or if we have even made up any?
To help us see this, I always find it helpful to look at different time frames of the same market or equity. In this case we will be looking at the Dow Industrial Average. I basically break them up into three sections:
- 3 – 6 months
- 1 – 1.5 years
- +5 years
These three different time frames give us the best understanding of where we really are short and long term. Remember we are not looking to see if we should necessarily buy or sell into Stock A, but rather what kind of playground will we be playing in.
3-6 months cover day traders, 1-1.5 years cover swing traders, and +5 years cover buy and hold philosophies.
3-6 Months – For this category, we will look at the 3 month time frame.
The short term approach actually looks kind of promising given the bad conditions we have recently had. The 10 day moving average seems reversing to the upside and we are approaching a resistance point (blue line).
If we stopped here, we may be able to sleep at night. Hopefully the longer time frames will show positive signs as well.
1 – 1.5 Years – For this category, we will look at the 1.5 year time frame.
Yikes! We zoomed out basically a year and the chart does not look as promising as the 3 month chart. In fact, there is not much we can really forecast from here. The Dow seems to be in a consolidating sideways move and there really is not any significant resistance until nearly a 2,000 point move.
If we are lucky, +5 years will show some of the same or maybe even a little better?
+5 Years – For this category, we will look at the 7 – 8 year frame.
This is just awful. The 200 day moving average (orange line) is nowhere near the current price. To make matters even more confusing, the orange line is not upwards or downwards. It has basically flat lined. If you know anyting about medicine, then you know that is not good. We really have yet to consolidate within the current trading range (green oval), which means there is still some time before we even think about going higher; however, just like the 1.5 year time frame the 2,000 point jump needed to get to a key resistance is still apparent.
Final Call
You be the judge. We went through three main time frames and combining them together there is really no sense of fluidity. While we may see some positive movement in the short term, it still looks like the down trend shown in the longer frames have yet to really establish themselves. It is highly unlikely the market will make a complete 180 and just head back higher.
So while we may not necessarily see the dramatic blood shed like weeks prior, there is still much work needed to be done. If we play are cards right and utilize the idea of multiple time frames, then there are still many viable plays out there.
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