Postcards: Six Rules for Negative Momentum
This market is under stress - Treasury bonds, inflation worries, and China are weighing on the market. Here's how to prepare for what may arrive this week.
Dear Fellow Expat:
In my world, momentum is a measurement of capital inflows and outflows in thousands of stocks. I take the measure, then boil it down to a simple red, yellow, or green.
We’re coming off the longest stretch of positive inflows and price gains for the S&P 500 and the Russell 2000 since late 2021. So, now is a great time to discuss some important rules for trading in negative momentum.
We have had three straight days where intraday momentum has turned negative before a surprise bounce back. But that is the trend when things go sideways. There is a trend of lower highs and lower lows. With energy prices surging in recent weeks, we could see a surprise CPI reading on inflation.
Now, if we go negative tomorrow… and we stay there, you need to be prepared.
I use a variety of technical indicators to determine how money is moving — but none are more important than the Money Flow Index, the Relative Strength Index, the MACD and the ADX 14.
And when the colors change, all hell can b…
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