The purpose of a trading model is to define certain conditions that, when met, alert us to consider making a decision to buy or sell. We assume that a large majority of technical analysts use trading models of some kind to assist in their trading decisions. DecisionPoint uses the DP Trend Model, DP Thrust/Trend Model and the Price Momentum Model. Let's focus on the Price Momentum Model (PMM) as recent readings have undergone the mighty October correction and remain profitable.
In the 1990s Carl Swenlin developed the Price Momentum Model (PMM), and it is still being used by DecisionPoint today. (Note: The PMM has nothing at all to do with the Price Momentum Oscillator--PMO.)
The Price Momentum Model (PMM) is applied to all the stocks, mutual funds, and market indexes we follow in the DecisionPoint Tracker reports. The PMM is strictly mechanical and is always set on BUY or SELL. For a new signal to be generated, price must: (1) reverse at least 10% from the extreme price for the current signal; and (2) pass through the 200-day exponential moving average (200EMA). A new Chart School article fully explains the PMM, and a companion article shows back testing results.
To pique your interest further, here is a table showing the current status of the PMM for our primary list of indexes and sectors. Notice that the signals are typically long-term in duration, some being over three years old. The current profit/loss column (Today P/L) shows the advantage of being able to hold positions through even large corrections.
PRICE MOMENTUM MODEL RESULTS as of 11/21/2014
11/21 Cal Price
Close % Signal Days High Today Rel to
Name Price Change Sgnl Date Elap P/L P/L STOP Stop
--------------------- ------- ------ ---- -------- ---- ------ ------ ------- -------
SP 500 SPDRs SPY 206.68 +0.5% BUY 10/21/11 1127 77.3% 77.3% 186.01 +11.1%
SPX Equal Wt Ind RSP 80.08 +0.6% BUY 08/08/12 835 62.7% 62.7% 72.07 +11.1%
Dow Indust SPDR DIA 177.70 +0.5% BUY 10/21/11 1127 62.2% 62.2% 159.93 +11.1%
Nasdaq 100 Shrs QQQ 103.87 +0.2% BUY 02/08/13 651 56.3% 56.3% 93.48 +11.1%
NDX Equal Weight QQEW 42.46 +0.6% BUY 08/16/12 827 66.4% 66.4% 38.21 +11.1%
SP 100 iShares OEF 91.87 +0.5% BUY 10/14/11 1134 76.2% 76.2% 82.68 +11.1%
SP 400 MidCp iSh IJH 144.36 +0.5% BUY 10/31/14 21 2.0% 2.0% 129.92 +11.1%
SP 600 SmlCp iSh IJR 111.30 0.0% BUY 10/31/14 21 1.1% -0.2% 101.47 +9.7%
Total Mkt Vipers VTI 106.37 +0.5% BUY 08/10/12 833 54.8% 54.8% 95.73 +11.1%
Consumer Disc SP XLY 70.09 +0.2% BUY 10/10/11 1138 95.1% 95.1% 63.08 +11.1%
Cons Disc EW RCD 85.85 +0.2% BUY 08/17/12 826 63.0% 63.0% 77.27 +11.1%
Consumer Stpl SP XLP 48.45 +0.4% BUY 10/20/11 1128 70.0% 69.9% 43.61 +11.1%
Cons Stpl EW RHS 104.00 +0.3% BUY 10/21/11 1127 80.2% 80.0% 93.74 +11.0%
Energy SP XLE 88.50 +1.3% SELL 09/30/14 52 11.8% 2.3% 89.93 -1.6%
Energy EW RYE 78.66 +1.3% SELL 09/22/14 60 15.8% 5.5% 81.64 -3.7%
Financial SP XLF 24.21 +0.5% BUY 06/29/12 875 72.3% 71.8% 21.85 +10.8%
Financial EW RYF 43.94 +0.6% BUY 07/03/12 871 69.7% 69.7% 39.55 +11.1%
Health Care SP XLV 68.32 +0.5% BUY 08/29/11 1180 120.4% 119.3% 60.99 +12.0%
Health Care EW RYH 140.19 +0.6% BUY 10/24/11 1124 118.5% 117.5% 123.90 +13.2%
Industrial SP XLI 57.18 +1.0% BUY 10/28/14 24 4.6% 4.6% 51.46 +11.1%
Industrial EW RGI 90.63 +0.7% BUY 08/10/12 833 66.9% 66.9% 81.57 +11.1%
Materials SP XLB 50.67 +1.2% BUY 11/18/14 3 1.6% 1.6% 45.60 +11.1%
Materials EW RTM 86.03 +1.1% BUY 11/18/14 3 1.4% 1.4% 77.43 +11.1%
Technology SP XLK 41.67 +0.1% BUY 03/07/13 624 42.3% 42.3% 37.50 +11.1%
Technology EW RYT 89.51 +0.6% BUY 10/31/14 21 2.6% 2.6% 80.56 +11.1%
Utilities SP XLU 45.70 +0.4% BUY 11/06/13 380 22.6% 20.3% 41.90 +9.1%
Utilities EW RYU 77.20 +0.5% BUY 10/25/13 392 23.9% 22.3% 70.38 +9.7%
Average +0.6% 638 49.7% 48.7% +10.0%
EXPLANATION OF TABLE HEADINGS
Close Price: The last price at which the stock traded today.
% Change: Percentage that price has changed from prior day's close.
Signl: The signal designations of BUY and SELL indicate the current direction of momentum and are not an indication that continuous buying or selling should take place. Signals that are a few days or weeks old give the best indication that profitable action MIGHT be taken.
Cal Days Elap: Indicates the number of calendar days that have elapsed since the current signal was initiated.
High P/L: Highest profit or least loss experienced since the current signal was initiated. On the first day of a new signal the P/L displayed is the closing P/L for the prior signal. The purpose of showing this statistic is to keep track of the maximum move embraced by the signal.
Today P/L: Profit or loss for the signal since it was initiated. On the first day of a new signal the P/L displayed is the closing P/L for the prior signal.
STOP: The price at which the mechanical PMM signal will reverse.
Price Rel to Stop: This column shows the relationship of the current price to the price at which the signal will change. (i.e. +5.3% means the current price is 5.3% above the signal change price. Ideally this number will be about 10% or less.
For comparison, the following table shows the current status of the Trend Model signals, another of our trading models that we use exclusively in the DecisionPoint Daily Update and which are tracked by Timer Digest. The Trend Model is much more sensitive to price corrections, and the October correction caused BUY signals to close. (They have since reopened.)
TREND MODEL RESULTS as of 11/21/2014
Days Index 11/21 Points Percent
Index Posture Date Elap @Start Close P/L P/L
------------------- ------- -------- ---- ------- ------- ------- -------
S&P 500 (SPY) BUY 10/31/14 21 201.66 206.68 +5.02 +2.5%
S&P Equal Wt (RSP) BUY 11/03/14 18 78.10 80.08 +1.98 +2.5%
Dow (DIA) BUY 10/31/14 21 173.01 177.70 +4.69 +2.7%
Nasdaq 100 (QQQ) BUY 10/29/14 23 99.81 103.87 +4.06 +4.1%
NDX Equal Wt (QQEW) BUY 10/30/14 22 40.66 42.46 +1.80 +4.4%
S&P 100 (OEF) BUY 10/31/14 21 89.75 91.87 +2.12 +2.4%
S&P 400 MidCp (IJH) BUY 11/05/14 16 141.76 144.36 +2.60 +1.8%
S&P 600 SmlCp (IJR) BUY 11/03/14 18 111.40 111.30 -0.10 -0.1%
Total Market (VTI) BUY 11/03/14 18 104.08 106.37 +2.29 +2.2%
Consumer Disc (XLY) BUY 11/05/14 16 67.55 70.09 +2.54 +3.8%
Cons Disc EWt (RCD) BUY 11/03/14 18 82.86 85.85 +2.99 +3.6%
Consumer Stpl (XLP) BUY 08/20/14 93 44.59 48.45 +3.86 +8.7%
Cons Stpl EWt (RHS) BUY 10/21/14 31 98.15 104.00 +5.85 +6.0%
Energy (XLE) Neutral 09/08/14 74 95.08 88.50 .... ....
Energy EWt (RYE) Neutral 09/08/14 74 87.04 78.66 .... ....
Financial (XLF) BUY 10/29/14 23 23.44 24.21 +0.77 +3.3%
Financial EWt (RYF) BUY 10/30/14 22 42.64 43.94 +1.30 +3.0%
Health Care (XLV) BUY 10/23/14 29 64.31 68.32 +4.01 +6.2%
Health Cr EWt (RYH) BUY 05/09/14 196 115.95 140.19 +24.24 +20.9%
Industrial (XLI) BUY 10/30/14 22 54.67 57.18 +2.51 +4.6%
Industrl EWt (RGI) BUY 10/31/14 21 87.96 90.63 +2.67 +3.0%
Materials (XLB) BUY 11/18/14 3 49.87 50.67 +0.80 +1.6%
Materials EWt (RTM) BUY 11/17/14 4 84.00 86.03 +2.03 +2.4%
Technology (XLK) BUY 10/31/14 21 40.54 41.67 +1.13 +2.8%
Technolgy EWt (RYT) BUY 11/04/14 17 87.51 89.51 +2.00 +2.3%
Utilities (XLU) BUY 08/28/14 85 42.62 45.70 +3.08 +7.2%
Utilities EWt (RYU) BUY 08/20/14 93 71.92 77.20 +5.28 +7.3%
Average 38 +4.4%
While a conclusion may be drawn that the Price Momentum Model is better than the Trend Model, that would not be correct. They are different and will perform better or worse depending on market conditions. Both love a steady price trend, but will behave differently during counter trend price movement. Before relying upon any trading model as part of a decision-making process, one should read the documentation, and observe how the model performs over time. Finally, one should always remember that past performance is no guarantee of future results.
