Here is another look at the U.S. T-Notes weekly chart.
The green zones E1, E2 & E3 represent the lowest boundary of strategic sell zones—which are just updated estimates of declining quarterly equilibrium.
Notice that the highs of the monthly ranges X, Y and Z (Mar ‘05 through May ‘06) never retrace back to quarterly equilibrium.
This suggested the rally in Jun ‘06 at A was occurring in a hi-momentum condition and the correction was offering a ripe technical condition for stalking a short or reducing any long inventory held from lower levels.
VARIANT PERCEPTION
In a tactical correction, like the rally to A in Chart 4, a variant perception arises because momentum traders are correctly assessing the odds as favoring a continuation to new lows, whereas some group of value traders are incorrectly assessing the odds of a rally and prematurely accumulating at a price they consider to be too low.
Isolating variant perceptions as they arise is key to understanding dynamic market conditions.
The green zones E1, E2 & E3 represent the lowest boundary of strategic sell zones—which are just updated estimates of declining quarterly equilibrium.
Notice that the highs of the monthly ranges X, Y and Z (Mar ‘05 through May ‘06) never retrace back to quarterly equilibrium.
This suggested the rally in Jun ‘06 at A was occurring in a hi-momentum condition and the correction was offering a ripe technical condition for stalking a short or reducing any long inventory held from lower levels.
VARIANT PERCEPTION
In a tactical correction, like the rally to A in Chart 4, a variant perception arises because momentum traders are correctly assessing the odds as favoring a continuation to new lows, whereas some group of value traders are incorrectly assessing the odds of a rally and prematurely accumulating at a price they consider to be too low.
Isolating variant perceptions as they arise is key to understanding dynamic market conditions.
The most timely opportunities to make portfolio adjustments (longs and shorts) is when a market has reached a critical state where well-developed divergences exist between the expectations of different groups of traders such that one group is forced to unwind or adjust their collective inventory creating market movements which are sustained long enough to offset and reward risk exposure.
To continue to Part 2c click HERE. To return to table of contents click HERE