Published March 31, 2017
DecisionPoint has long been a large influence on our work here at Fraser Partners (developer and publisher of TimingCube, FPResearch, TradeGuru, and ETFTide). The chart and technical analysis purveyor has a disciplined, consistent approach as we do. We are kindred spirits. Below is a long-term chart (Chart 1) showing over 20 years of stock market history. The flowing green and red lines together show an indicator that DecisionPoint calls their Price Momentum Oscillator (PMO). Applied to monthly stock price data, we look for the red and green lines to cross each other. When the green line is above the red line, we are in a market uptrend. When the red line is above the green, a downtrend is prevalent. We highlight when one line crosses the other with red or green vertical lines – red for a new downtrend; green for a new uptrend. Outside of the blip back in 1998 shown with dotted lines, this indicator has been very good at highlighting major turns in the stock market.
However the underlying dynamics of the market always change. This makes it a challenge with mechanical models of any sort. We can see that this PMO model, which has had a very strong record of calling, reasonably, the market’s tops and bottoms, is now signaling a new uptrend. If that holds up, it will mean that the downtrend signal (the vertical red line shown in early 2015) has been a false one. There was a subsequent flat to down period for a year. So it appeared for awhile that the signal of the new downtrend would be the right call. But the ensuing rally proved the signal false and set the stage for the new uptrend call from this model happening now.
Chart 1: DecisionPoint’s PMO model signals a new long-term market uptrend
As with any signal, we cannot know whether it will be profitable or not. There is, at least short-term, plenty of market skeptics around arguing that this market is headed for a fall. All markets fall, and rise again. DecisionPoint’s PMO signal says that this market’s uptrend is just beginning. Will it be so?
Stocks looked to get the rally back on track after their first real down week of the year the prior week. Monday saw little change in stocks with indexes registering a -0.1% move on no new news. A strong reading on consumer confidence sent equities moving upward Tuesday as stocks posted a +0.7% gain. Financial and energy shares bounced back from their recent swoon to lead the way. Retail behemoth Amazon (AMZN) took flight Wednesday to keep stocks +0.1% positive. Oil prices pushed back above $50 Thursday with the 4th quarter GDP reading nudged up to 2.1%. Broad market indexes rose +0.3%. Stocks closed the week with a -0.2% session that saw little movement in any direction.
The S&P 500 rose +0.80% for the week after bouncing off its 50-day moving average while the Nasdaq 100 (QQQ) added +1.34%. Smallcaps finally showed some strength gaining +2.22%.
Warm wishes and until next week.