I look at facts. There are many people who choose a variety of other factors that aren’t necessarily true. Market participants all over the world look at economic data (which are estimates), statements from CEOs of companies (do you trust them all? if not, which ones and why?), analysts ratings (are opinions) and an infinite of other metrics that have no history of being fact. Price, on the other hand, is the only truth we can be confident in believing. I’m selfish, if I can’t trust that my data is correct, how could I possibly trust the outcome?
The way I look at markets is very simple: we want to see relative strength and positive momentum. Today, we’re going to stick with momentum itself and what has happened the past few months. To be clear, I explain my entire process of analyzing momentum on this page. The get to the point of this post, we all need to understand that when momentum is in a bullish range, it is confirming that prices are in, or still in, an uptrend. It’s when momentum falls into a bearish range that the evidence points to a downtrend in price, or at least a market that is no longer an uptrend.
I look at 5000 charts a week, every week. This isn’t something I do on occasion. This is what I do. Take my word for it, or start tracking it yourself, when the price of a stock or commodity or market index is in an intermediate-term uptrend, momentum, using a 14-period RSI, is above 30. When prices are correcting within an ongoing uptrend, we do not see oversold conditions (below 30 RSI). The same can be said in bear markets when RSI fails to reach 70 in momentum. That would be characteristic of a downtrend in price: [Read more…]