LunaticTrader

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Posts Tagged ‘MoM’

LT wave for March

Posted by Danny on March 1, 2017

The market has drifted sideways in the recent week and we are now going almost 100 trading days without a 1% down day in the S&P 500. That’s already the longest such streak since 1995. It will be interesting to see if this move joins the 100 club. Let’s have a look at the current S&P 500 chart:

sp500-daily-6_3_2015-2_28_2017

The rally that started in November keeps going and there is no clear sign yet that the advance may be over. The MoM indicator stays in the +8 euphoric zone, but it has turned down which means we can do some first selling at this point. If MoM drops below +8 then do some more selling. See last week’s article.
The Earl (blue line) has turned down, which suggests a pullback is coming up. But maybe it will be no more than a few days hiccup before stocks climb to another record. There is no way to tell at this point, we just need to be aware that this market can suddenly go into blow-off mode here. Such a move becomes very difficult to read in its final stages, and traders who find themselves on the wrong side of it are typically given little or no chances to get out without significant losses.

The LT wave for March doesn’t paint an easy picture either:

ltwavemar2017

The LT wave for February was partially successful. After some hesitation in the first week stocks surged to new records in the expected strong period until the 15th. The next expected weak period didn’t produce any decline and the final days saw new records again.
For March there is a peak value on the 1st followed by projected weakness until the 10th. Then a strong period until the 15th or 16th. A second weak period is expected until the 27th.
The lowest LT wave value of the month comes on the 7th, with a second low on the 27th. Peak values come on the 1st, 13th and 29th.

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MoM will take care of you

Posted by Danny on February 20, 2017

That’s not just a wink to all the loving mothers out there. I am of course talking about the MoM indicator, one of my three “bread and butter” indicators you can usually find in the charts I post every week. Before taking a closer look on how to use the MoM for index trading I want to start with the current Nasdaq chart:

comp-daily-6_23_2015-2_17_2017

Both the Nasdaq and the S&P 500 have been making a significant breakout to the upside, brushing aside overhead resistance and not showing any intentions of looking back. This is a scenario I have been warning for last week. We still have to keep an eye on the remaining possibility of a failed breakout, as I discussed in my mid-week post. But if the market keeps forging ahead into March then the scenario of a failed breakout would become unlikely.

The MoM indicator is shown at the bottom of the chart and has now climbed above 8 for first time since early August. For individual stocks it is quite common to see the MoM go above 8 during strong rallies, but for broader market indexes a +8 usually happens only a few times per year. The +8 euphoric zone means the market is red hot and the risk for a sudden pullback, if not the start of a bear market, is high. But that doesn’t mean a pullback is imminent. Just as often a +8 gets worked off through time. That’s what we got in Aug-Oct 2016. We see three earlier cases of MoM +8 in the chart (circled in blue) and you wouldn’t have missed much by selling on those occasions.

Conversely, when MoM drops below -6 into the blue zone it usually marks tradeable bottoms and a -8 (= depressed) will typically indicate a major low. I have marked 7 such opportunities in the chart. It is easy to see that you would have done well by doing some buying at those -6 opportunities and just hold until the next +8 peak. Again, for individual stocks it is more common to see -6 or even -8, but for market indexes it is quite rare. We can use this to do swing trading with just one indicator.

There is a couple more things to know if you want to make the most of this:

1) You do not need to sell on the very first day the MoM climbs above 8. As long as it keeps climbing you can wait. Just move your stops closer to the market when MoM is +8 and wait for MoM to turn down to start selling. If MoM falls back below +8 then do some more selling. More often than not you will be able to get back in at lower prices in the ensuing weeks or months and that’s how you can lower your cost basis.

2) In a strong bull market the MoM may not drop back to the -6 zone all that often and may print a series of peaks in the +8 area. Here is a good example from Nasdaq in 2013-15:

comp-daily-5_23_2013-4_8_2015

MoM in the -6 zone gave us good entry points, but in the second half of 2013 we see a series of +8 peaks with small pullbacks that take the MoM to the zero level but not all the way down to -6. This happens when the market goes into “climbing up the stairs” mode. Then pullbacks are short and shallow with each new thrust creating another step higher. So, be prepared for this possibility. Actually, the current +8 as shown in the first chart could be the start of such a series. Two pullbacks since the November lows have seen the MoM bottom at zero before turning back up. This is climbing up the stairs until we see a deeper drop in MoM.

3) In major bear markets MoM will often fail to reach the +8 zone on rallies and print series of -6 lows during “waterfall declines”. This is just the reverse of #2. Here is a great example showing Nasdaq in 2008-09:

comp-daily-9_6_2007-8_20_2009

MoM reached +8 near the peak in October 2007. That was followed by a series of MoM lows in the -6 zone and a persistent failure to reach +8 on rallies. During the crash stage in late 2008 MoM stayed in the -6 zone for months. In this kind of situations patience is of the essence. After a lengthy stay in the -6 zone you will almost always see a secondary low that takes MoM back to the -6 zone, but not as low as during the crash stage. You want to buy on those secondary lows, not during the crash itself. Here we got two of them, November 2008 and March 2009. The next +8 didn’t happen until July 2009, almost two years after 2007 peak.

4) To buy major lows you don’t buy on the first day that MoM dips below -6. At least wait as long as MoM keeps going down and if it is a powerful decline then be aware for possible “waterfall” stages. It will often be better to wait until MoM climbs back above -6 and if there has been a lengthy -6 phase then wait for secondary lows as described above. To show an example for a different market here is the Oil crash from 2014:

cl-daily-6_27_2013-5_16_2015

A +8 peak in July 2013 was followed by several -6 lows. Those lows gave way to little rallies, but none of them strong enough to reach +8 again in the next 12 months. That signaled weakness. The subsequent waterfall declines kept MoM below -6 most of the time and dead cat bounce rallies couldn’t even get above zero. When you see that it is important to resist the temptation to buy at “very cheap” prices. Just wait. In this case buying when MoM climbed back above -6 in late January 2015 would have given a good entry, but still dangerous as evidenced by the drop to lower lows in March. We want to wait for a secondary low after such a waterfall decline. here is how it continued:

cl-daily-11_29_2014-10_7_2016

There was a nice rally in early 2015, taking Oil back up to $60 and making many investors think that the bottom was in. But it failed to reach the +8 zone, suggesting ongoing weakness. Soon the price of Oil was sliding to new lows again with MoM staying in the -6 blue zone for almost two months. And then a final washout decline into early 2016 lows just above $25. Notice how the final low in February 2016 came with MoM bottoming well above the -6 zone. This is a major bullish divergence, a common feature at the end of long declines. The next +8 peak came in August 2016, almost 3 years after the previous one. This is how patient we have to be in major bear markets.

Reading the market is a difficult challenge and always will be. There are no perfect tools for that purpose. But MoM indicator usually does a decent job. The MoM for major indexes is posted on my Twitter every day.

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Key reversal levels for week of October 20, 2013

Posted by Danny on October 20, 2013

I have now automated the calculation of my key reversals to a large extent, saving me time, and from this week onwards the presentation format is changed a bit. The weekly and the daily reversal tables are now shown separately, making space for some additional info to be shown.
A long term investor can do well by going with the weekly table only, while a shorter term swing trader would rather use the daily table and try to trade with the daily trend. But, it is always good to look at the bigger weekly picture first and then consider the daily moves.
Let’s start it off with the new weekly table:

Weekly Current BB Key (W) MoM (W) Weeks % Ch
Nasdaq 3,914.28 3,555.21 6.74 41 26.71
S&P 500 1,744.50 1,632.76 3.10 46 23.17
Nikkei 14,561.54 13,219.07 2.46 47 53.83
FTSE 100 6,622.60 6,369.00 0.59 14 1.19
DAX 8,865.09 8,300.57 5.24 14 7.61
Bonds (TLT) 107.04 109.20 -2.20 22 -8.11
Gold (spot) 1,315.88 1,408.91 -1.60 43 -20.58
$EURUSD 1.3682 1.3224 4.36 12 3.01
Oil (CL) 101.11 99.74 0.11 24 5.79

(Legend:  BB: green = bullish, red = bearish | Key: key reversal level | MoM: MoM indicator | Weeks: weeks since start of current bullish or bearish trend | % Ch: percent change since start of current trend)
(for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )
(for information about the MoM indicator, see: https://lunatictrader.wordpress.com/2013/09/14/mom-indicator/ )

So what’s new?

The bullish or bearish status is now given as a bright green or red color in the BB column. Next to it you find our key reversal level, which is the level to watch for stop-loss or for entering/reversing positions, always to be used based on close prices only.
The MoM indicator comes next. It is now printed in green when the MoM is going up, and in red when MoM is going down.
Then we have two new columns. The first one shows us how many weeks have passed since the given market started its current trend, with the last column showing the percentage change since the beginning of that trend. For example, we can see the Nasdaq has now been in bullish(green) status for 41 weeks, and has gone up 26.71%. Bonds have been bearish for 22 weeks and are down 8.11% over that period.

You can see that all markets here have been moving in the expected direction, as the %Ch is displayed in light green. Whenever a market has gone against the expected trend, the %Ch is displayed in pink.
More on that later.

Important developments in the weekly key reversal levels:

* All covered stock indexes remain in weekly up trends and now have upward weekly MoM again. As we pointed out last week, MoM turning back up soon was an important condition for the bull market to continue, and that’s what happened.

* Bonds (TLT) have been bearish for 22 weeks, but MoM is to the upside and TLT is once again closing in on its weekly key reversal level. A weekly close above 109.20 would be a long term bullish sign.

* Gold remains bearish with downward MoM on the weekly level.

* The EURUSD is quietly grinding upwards. Has appreciated only 3% in 12 weeks, but sometimes these stealth bull markets have long ways to go. Time will tell.

* Oil is still bullish, but weekly MoM is to the downside and oil is getting very close to falling below its key reversal level. A weekly close below $99.74 would be a long term bearish sign.

Here are the daily key reversal levels for next Monday:

Daily Current BB Key (D) MoM (D) Days % Ch
Nasdaq 3,914.28 3,752.96 5.15 5 3.90
S&P 500 1,744.50 1,685.81 5.56 6 3.16
Nikkei 14,561.54 14,223.92 2.75 5 1.09
FTSE 100 6,622.60 6,473.73 3.60 3 1.12
DAX 8,865.09 8,606.24 6.88 6 1.84
Bonds (TLT) 107.04 105.30 0.35 1 -0.07
Gold (spot) 1,315.88 1,328.31 -2.20 26 -0.39
$EURUSD 1.3682 1.3481 2.14 27 2.79
Oil (CL) 101.11 103.92 -2.65 23 -3.49

(Legend: BB : green = bullish, red = bearish | Key: key reversal level | MoM: MoM indicator | Days: days since start of current rally or decline | % Ch: percent change since start of current move)
(for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )
(for information about the MoM indicator, see: https://lunatictrader.wordpress.com/2013/09/14/mom-indicator/ )

Note: here we see an example of %Ch displayed in pink. Bonds are in rally mode (green) since 1 day, but the price has gone the other way so far.

Important developments in the daily key reversal levels:

* All covered stock markets are in fresh rallies with upward MoM.

* Bonds (TLT) are in rally mode again.

* Gold is closing in on its daily key reversal level, and MoM has turned up again. That’s the first good news in quite a while for gold. Now we have to see whether it can close above that daily key reversal level at $1328.30

* $EURUSD is quietly ticking upwards.

* Oil (CL) is quietly sinking downwards.

And here are our key target zones (we use a +/-1% zone around these targets):

Key Targets Top Top2 Bottom Bottom2
Nasdaq 3930 3530 3210
S&P 500 1799 1820 1576 1522
Nikkei 15850 16580 12710 10450
FTSE 100 6800 7100 6205 6110
DAX 8920 9310 7870 7210
Bonds (TLT) 111.80 128.50 102 96.25
Gold (spot) 1448 1540 1215 1078
EURUSD 1.36 1.3950 1.2870 1.2350
Crude Oil(CL) 109.40 121 94.30 89.50

(* = new target, Bold = closely matches a major weekly key target )
(for more details about these key targets, see: https://lunatictrader.wordpress.com/2013/08/20/key-target-levels/ )

Important developments last week:

* We have no new targets this week.

* The Nasdaq has broken through the 3830 target, and is already testing the 3930 level, which is the next hurdle.

* The S&P has also broken above the 1730 target. Here we set sights on 1799 and 1820 next.

* $EURUSD is still testing the 1.36 top target. If it goes a little bit higher then 1.3950 will be the next top target.

Good luck,

Danny

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Key reversal levels for week of September 23, 2013

Posted by Danny on September 21, 2013

Our key reversal levels going into next week:

Current Status Key (W) MoM (W) Mode Key (D) MoM (D)
Nasdaq 3775 BULL S: 3473 6.13 (5.94) RALLY S: 3687 7.80 (7.49)
S&P 500 1710 BULL S: 1611.60 2.50 (2.31) RALLY S: 1671.80 8.46 (8.41)
Nikkei 14742 BULL S: 12908 1.64 (1.08) RALLY S: 14064 5.78 (5.69)
FTSE 100 6596 BULL S: 6354 1.47 (1.43) RALLY S: 6519 2.79 (2.98)
DAX 8676 BULL S: 8096 2.54 (2.04) RALLY S: 8421 8.28 (8.16)
Bonds (TLT) 104.92 BEAR R: 110.70 -5.83 (-6.28) RALLY * S: 103.52 0.59 (-0.38)
Gold (spot) 1325.6 BEAR R: 1423.10 0.43 (0.57) DECLINE R: 1372.90 -3.36 (-3.89)
EURUSD 1.3525 BULL S: 1.3098 2.24 (2.01) RALLY S: 1.3286 5.79 (4.56)
Oil (CL) 104.75 BULL S: 99.28 4.26 (4.94) DECLINE * R: 108.00 -1.97 (-1.34)

(Legend: W = weekly, D = daily, R = resistance, S = support, MoM = MoM indicator, * = changed from last week)
(for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )
(for information about the MoM indicator, see: https://lunatictrader.wordpress.com/2013/09/14/mom-indicator/ )

Important developments in the key reversal levels last week:

* Stock markets have continued to rally, and weekly MoM is now up again for all covered markets. Daily MoM is slightly down for FTSE100, which has been lagging a bit, but remains up for the other markets.

* For S&P 500 and DAX we see that MoM has climbed into the very optimistic +8 area, with the Nasdaq also getting close. They can stay above 8 for a while, but a pullback will start sooner or later. When MoM starts pulling back from levels above 8, that’s when I start trailing my stop-loss very close to the market. See my recent post: Trailing stops when you think a peak is near

* Bonds (TLT) have gone into rally mode, as was already suggested by rising MoM last week. Coming off a double bottom, this rally has better chances of seeing some follow through than the failed breakout we got in August.

* Gold bounced back towards its daily key reversal level last week, but failed to get above it and closed the week nearly unchanged. The picture remains bearish. Weekly MoM has turned down, while the daily MoM has turned up with the mid-week bounce.

* The EURUSD rally has gathered some steam last week, so maybe the breakout from choppy range will be unexpectedly to the upside. But, our 1.36 target level will have to be taken out if this rally is to continue (see target zones).

* Oil has gone into decline mode again, as was indicated by weakening MoM already. Also here it could mark the end of a choppy trading range. I am now looking for the weekly key reversal level to get tested, currently at $99.28

 

And here are our key target zones (we use a +/-1% zone around these targets):

 Key Targets Top Top2 Bottom Bottom2
Nasdaq 3830 3930 3530  3210
S&P 500 1738 1799 1576 1522
Nikkei 16580 17980 12710  10450
FTSE 100 6800 * 7100 6205 6110
DAX 8920 9205 7870 7210
Bonds (TLT) 128.50 134 102 96.25
Gold (spot) 1448 1540 1215 * 1078
EURUSD 1.36 1.3950 1.2870 1.2350
Crude Oil(CL) 109.40 121 89.50 77

(* = new target, Bold = closely matches a major weekly key target )
(for more details about these key targets, see: https://lunatictrader.wordpress.com/2013/08/20/key-target-levels/ )

Important developments last week:

* We have a new bottom target for gold at $1215.

* The top target for FTSE100 at 6750 has been refined to 6800

* The Nasdaq and the DAX have broken above their first top target. Next up for Nasdaq is now 3830 and for the DAX 8920.

* The S&P came close to its top target at 1738 and turned back down from it.

* Bonds (TLT) retested their bottom target at 102, and bounced back up from it.

* The EURUSD is also testing its upside target at 1.36

 

Good luck,

Danny

 

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Key reversal levels for week of September 16, 2013

Posted by Danny on September 15, 2013

Our key reversal levels going into next week:

Current Status Key (W) MoM (W) Mode Key (D) MoM (D)
Nasdaq 3722 BULL S: 3449 5.94 (6.07) RALLY S: 3643 6.48 (5.93)
S&P 500 1688 BULL S: 1603.40 2.31 (2.78) RALLY * S: 1657.60 5.27 (4.25)
Nikkei 14405 BULL S: 12814 1.08 (0.9) RALLY S: 13890 5.99 (5.72)
FTSE 100 6584 BULL S: 6337 1.43 (1.39) RALLY * S: 6491 3.36 (3.02)
DAX 8509 BULL S: 8035 2.04 (2.06) RALLY * S: 8278 4.21 (2.88)
Bonds (TLT) 103.55 BEAR R: 111.17 -6.28 (-6.46) DECLINE R: 104.49 -2.99 (-3.29)
Gold (spot) 1325.8 BEAR R: 1429.20 0.57 (0.20) DECLINE * R: 1381.20 -3.0 (-1.76)
Euro/US$ 1.3298 BULL S: 1.3075 2.01 (2.36) RALLY * S: 1.3213 -0.15 (-1.11)
Oil (CL) 108.21 BULL S: 98.85 4.94 (5.09) RALLY S: 106.50 0.98 (1.29)

(Legend: W = weekly, D = daily, R = resistance, S = support, MoM = MoM indicator, * = changed from last week)
(for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )
(for information about the MoM indicator, see: https://lunatictrader.wordpress.com/2013/09/14/mom-indicator/ )

Important developments in the key reversal levels last week:

* All covered stock markets are back in rally mode with daily momentum (MoM) going up nicely. Weekly momentum for most markets is now starting to turn back up as well, which means stocks will probably be showing a fully bullish picture again by next week… unless we get a sudden downturn.

* All stock markets remain in bull status, and well above their weekly key reversal levels.

* Bonds (TLT) are still in bear status and decline mode. But both the daily and weekly MoM are going up. Bonds are coming off a very pessimistic MoM-7.7 bottom on the weekly chart, which indicates a nice rally is in the cards once it can close above its daily key reversal level at $104.49. This could happen as soon as the Fed announces tapering of its QE program in a classic “sell the rumor and buy the news” reflex.

* Gold has gone into decline mode, and is now seeing quickly falling daily MoM. I wouldn’t consider to buy gold until we see MoM stabilize and turn up again.

* The Euro/US$ is back into rally mode, but not very convincingly. This remains a very choppy market, with little or no momentum either way. It will go into a good trending move eventually, but we have to be patient. I think the better odds are for a move to the downside, so on a close below the daily key level at 1.3213 I would consider taking short positions.

* Oil remains in rally mode, but both the daily and weekly MoM are going down. The repeated failure to climb above $110 and the weakening momentum suggest that the path of least resistance is down for oil. Time will tell.

 

And here are our key target zones (we recommend using a +/-1% zone around these targets):

 Key Targets Top Top2 Bottom Bottom2
Nasdaq 3730 3830 3530  3210
S&P 500 1738 1799 1576 1522
Nikkei 16580 17980 12710  10450
FTSE 100 6750 7100 6205 6110
DAX 8550 8920 7870 7210
Bonds (TLT) 128.50 134 102 96.25
Gold (spot) 1448 1540 1078 1001
Euro/US$ 1.36 1.3950 1.2870 * 1.2350
Crude Oil(CL) 109.40 121 89.50 77

(* = new target, Bold = closely matches a major weekly key target )
(for more details about these key targets, see: https://lunatictrader.wordpress.com/2013/08/20/key-target-levels/ )

Important developments last week:

* We have one new bottom target for the Euro/US$ at 1.2870.

* The Nasdaq reached its top target at 3730 last Tuesday and has remained stuck at that level for the rest of the week.

* The DAX is also close to its top target at 8550.

* Bonds (TLT) are testing their bottom target at 102 again.

* Oil seems to have failed on its second attempt to get above its $109.40 top target.

Good luck,

Danny

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MoM indicator

Posted by Danny on September 14, 2013

A few weeks ago I introduced the “MoM” indicator in the context of my weekly key reversal levels. In this post I will give more info on the MoM and how to use it.

The main idea behind the key reversal levels is “market orientation”, where is the market right now, and where it appears to be going… While charts are very nice and can give us an intuitive “feel” about a given market, they generally contain way too much information. All the years prior tell us where the market has been, but all that “history” is not necessarily very helpful information. We can keep an eye on the past, and it deserves perhaps 20% of our attention, but if we are to trade succesfully then 80% of our focus has to be on the *now*. And that’s the problem with charts, they typically show us only 1% now and 99% past. So, they tend to keep a trader stuck with the past.

The key reversal tables try to summarize where we are right now. Is it a bull or bear market, and is the market rallying or declining? At what key price levels can we consider a change from rally to decline (or from bull to bear)?
That’s all a trader or investor really needs to know.

The MoM indicator is an even more condensed format as it simply tells us where we are on a numeric scale between 10 and -10.  You could compare it to the Richter scale for earthquakes, or a market thermometer if you want.

Various levels in the MoM indicator correspond to market mood as follows:
* +8 to +10: very optimistic – euphoric (red)
* +5 to +8: optimistic (pink)
* +3 to +5 : positive (orange)
* -3 to +3: neutral (yellow)
* -3 to -5: negative (green)
* -8 to -5: pessimistic (blue)
* -10 to -8: very pessimistic – depressed (dark blue)

To see how this works in practice, here is a chart showing you the recent history of the MoM indicator on the weekly Dow Jones chart (click for larger image):

Djia MoM

Good buying opportunities typically occur when MoM bottoms below -5 in the blue pessimistic zone, as was the case in September 2011. Bull markets will usually see the MoM rise into the optimistic pink or red zone, where they can stay for a while. So, a rise above +5 is not a reason to sell immediately, but one should watch out when the MoM starts going down from optimistic levels. Ordinary counter trend pullbacks or rebounds will typically bottom or peak in the yellow zone (+3 to -3) before resuming move in direction of the longer term trend.
Notice how most of the time the market moves in the same direction as the MoM, and that’s why we watch carefully whether MoM is going up or down.

On weekly charts it is rare to see MoM go below -8, but when it does so it are almost always great long term buying opportunities.

On daily charts we will see the MoM go to extreme values more often. Here is a recent daily chart for Dow Jones (click for larger image):

Djia MoM daily

Over the past year we had three drops into the blue pessimistic zone, which presented good buying opportunities.
You can also see why MoM rising into the red optimistic zone is not a reason for instant panic. In ongoing bull markets we will regularly get a sideways pause or mild pullback with the MoM falling back into the yellow neutral zone before starting the next swing to the upside. We then get a series of MoM peaks in the red optimistic zone. So, we can just move our protective stop closer to the market whenever the MoM turns down in the red zone. That will get us out when a deeper correction comes along, as was the case in May-June and in August.

There are more possible uses for the MoM, but that will be for another post. And in case you wonder: yes, it is possible to trade based on this MoM indicator only. In fact, a patient long term investor can do very well based on the weekly MoM only.

Stay tuned,
Danny

 

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