In an environment where volatility has picked up at the index level and there are more mixed signals in the market, we want to be more selective in the longs and shorts we put on.
An important part of tightening up our risk management across the board is knowing what timeframe is relevant to us, both at the portfolio and individual stock level.
Today we want to look at an example in Jubilant Foodworks to highlight this concept.
First, let’s start with the weekly chart of Jubilant Foodworks, which recently broke out to new all-time highs on an absolute basis with momentum getting firmly into overbought territory. This is a stock in a structural uptrend that broke out above resistance at 1,960 and is starting to move towards its next upside objective at 2,940.
Click on chart to enlarge view.
For all intents and purposes, this is a stock we want to be buying on weakness as long as it’s above its breakout level/risk management level at 1,960…as long as your timeframe for the trade is 6-12 months or longer.
Now here’s the stock on a daily timeframe showing prices extended from their 200-day moving average as momentum diverges negatively. This slowdown in momentum and break of its recent uptrend suggest a correction may be ahead for the stock over the near-term.
As long as prices are below their recent highs, then this bearish short-term thesis is intact and there’s potential for weakness down towards 1,815.
If you’re a long-term holder of the stock, a 15%-20% correction may not matter to you. But if you’re a short-term trader, a 15-20% downside move over the next couple weeks or months is a nice trade on the short side.
Both can be right. Just know which situation matters to you.
So the next time you’re asking yourself or anyone else whether a chart looks “bullish” or “bearish”, remember that it depends on the timeframe.
Often times there are conflicting signals across timeframes, so it’s important to know what’s relevant to you.
Thanks for reading and please let us know if you have any questions!