What is the problem with momentum?

It’s tough for a technician to ask such questions. But then there is no stupid question. So here it goes. What’s wrong with momentum? Though conventionally momentum is understood as an oscillator that defines overbought and oversold, momentum can also be defined as a detrending cycle calculated on an asset price. When the cycle is up, prices are strong and vice versa. When the cycle reaches an extreme high, its an overbought situation and vice versa. The problem is that performance could be different at different degrees of time i.e. the trend for different degrees of time can be different. On a daily time frame performance of an asset could be overbought and ready to reverse. On a weekly time frame performance could still be positive and have no signs of reversal. On a monthly time frame performance prices may have not have completed a 24 month bear market yet. While on a quarterly time frame the asset might be already in a major multi decade bull market.
How can this happen? This does happen. And this is what momentum (say Rate of change) is suggesting on Indian Nifty. On daily it’s suggesting 5,750 as high potential resistance reversal, on weekly ROC is still positive and does not confirm the daily view that 5,750 would really be a serious resistance, monthly ROC is still negative from the 24 month bear market and still below zero line (which is conventionally interpreted as the first sign of change of trend), while quarterly ROC momentum never fell below zero after 2004 low. According to the quarterly ROC Indian markets never entered a cycle degree bear. So what is the problem? The problem is that momentum does not harness different degrees of time in one common indicator. There are special indicators like Pring’s KST that attempt to harness multiple degrees of time. Maybe this is why it’s called Know Sure Thing (KST). We need more indicators like KST because a trader does not want to look for a reversal based on daily at 5,750 and get whipsawed by a move up to 5,800 or 6,000.
We think a multi week reversal is near. March is known for reversals and we are getting our ‘short-idea’ list ready for you. Remember market’s don’t move in straight lines. No correction means violent correction. So use the current upside to reassess your winners and losers. We have carried the NIFTY update from our intra day TICKS service for you. Enjoy.

Our Jiseki Time cycles are seasonal patterns of strength or weakness in assets. They are derived from percentile rankings from 1 to 100. The higher the percentile more the chance for an asset to weaken and worst the ranking, better the chance for the respective asset to outperform. 100 is top relative performance and 1 is worst performance. The idea is that performance is cyclical. A top performer will underperform in future and vice versa. A top relative performer is also the worst value pick and the top relative underperformer is the best value pick. Jiseki is another name for Performance cycles, time triads and time fractals. The signals are illustrated as a running portfolio and as Jiseki Indices. These signals can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades.
Jiseki Interpretation. Signals are interpreted as crossovers between various Jiseki Cycles. All three Jiseki cycles (Jiseki 1,2 and 3) depict different time frames. Example: An asset is ranked above 80 percentile and all the three Jiseki cycles are pointing lower, this suggests a running SHORT SIGNAL. Our Jiseki Indices use different kind of exits based on price and Jiseki Cycles. We have color coded the (Jiseki 1>Jiseki 2) SHORT zones with brown sandy (burlywood) and grey (Jiseki 1>Jiseki2) for LONG SIGNALS.
Coverage: CNX 100 components and all Indian Sector Indices.

Mukul Pal, is a Chartered Market Technician, MBA Finance and a member of the reputed Market Technicians Association (MTA). He has more than a decade of Capital Market experience dealing with derivatives and global assets. He has worked for Bombay Stock  Exchange, multinational Banks and brokerage houses in leading research positions before starting on his own in 2005. He is the President of the MTA Central and Eastern European Chapter.