Time Frame Positioning

It’s always important to keep time frames in mind when investing and/or trading, but has been especially so in the past year. Against the bigger trend down, the market has produced spectacular rallies in various sectors, commodities, and currencies.

Whenever an analyst provides a market forecast, it’s assumed to mean the long term but people rush to implement it in the short term. Somebody talking about a higher market in 2010, for instance, is assumed to be suggesting that it’s good to buy stocks right now.

One thing I’ve learned in the past year is that I need to be clear on time frames. To that end, I wrote a lot about oil’s long-term march higher, but got entirely out of the commodity on Jan. 6 in anticipation of a short-term correction, and planned to get back in again at lower levels. Faster than I thought, lower levels are here and we’re placing another order.

Ditto certain parts of the stock market. Even if 2009 is going to be another stinker, it doesn’t mean we won’t get solid counter-trend rallies. What helps is watching sector ETFs for overstretching in one direction or the other, and then positioning for the snapback.

One benefit of a highly volatile market is that the line bounces between the upper and lower parts of its range quickly. Missed the most recent move? Stop chasing it and start watching for a good entry on the opposite side.

Cases in point were abundant in the last two months. Look over my free ETF Trading Clusters and chart a few that are of interest to you. Let’s say you’ve been watching the 3x financial and small cap ETFs from Direxion. They are:

FAS +3x Russell 1000 Financial Services
FAZ -3x Russell 1000 Financial Services

TNA +3x Russell 2000
TZA -3x Russell 2000

Here are the performance paths of the two +3x funds since the Nov. 20 market low:

FAS +110% -43% +80% -36% +29% -21% +28% -48%

TNA +81% -35% +45% -17% +22% -12% +32% -29%

The last two moves of -48% and -29% happened in the eight trading sessions from Jan. 6 to yesterday. What comes next when Team Obama arrives in Washington on Tuesday with talk of a fresh start?

I sent three new orders to subscribers at 7:00 a.m. New York time today. I’ll be following up on those orders this Sunday morning. If you’d like to see what we’re up to, please add your name and email to the list.

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