The low frequency monthly chart, below, illustrates that the price action that appears to momentum traders as a high momentum move down with no bottom in sight in the daily timeframe (see Chart 5) is, in fact, an orderly move to equilibrium in this higher timeframe.

VARIANT PERCEPTION
This is an example of variant perception among different groups of traders in observing the same price, only at different frequencies.

In this particular case, momentum traders perceive that the probability for a continuation of the move down is higher than the actual probability. This is an error in assessing probability because historically major reversals back up tend to occur at rising quarterly equilibrium levels

Value traders perceive that the probability for a significant continuation of the move down is a low probability because they expect major reversals to occur at rising quarterly equilibrium levels.

This is not to suggest that momentum traders are always wrong. In the next installment, we’ll examine a different kind of variant perception which favors momentum traders over value traders.