How to Use the Momo and ProMomo Tools

I’m getting questions from people who don’t understand how the Momo and ProMomo Tools work.  These tools are for trend-oriented stock traders and they are updated a few minutes after the close each day on my blog

First, look at a daily chart of SPX, the S&P 500.  Focus on the larger picture of the past few months.  Perhaps you see high-level market turns, up, right after 3/16/2011 and 4/8/2011.  Look now, please.  Also, perhaps you see turns, down, right after 4/7 and 5/2.  Perhaps you take minor exception to those dates.  That’s ok, just try to see the big picture this way.

Now, mentally zoom in, still on daily, but look in better detail.  Do you see the pause/dip/whatever that ended on 3/28?  Do you see the one that ended on 5/5?  Perhaps it won’t end; I’m writing this on 5/14/2011.

You could do the same visual analysis with any sector average or ETF or commodity index.  I encourage that; I do it all the time.

In a bullish period, are you interested in which stocks led “up” after a turn from down to up?  The MomoUP and ProMomoUP tools answer precisely that.  They let you examine up to 10 days following any market turn that interests you.  In a bearish period, you would use the MomoDOWN or ProMomoDOWN tools.

All four of these tools are organized exactly the same way, and this is important…  Pick a starting point in time that picques your interest,… Then, move forward one day at a time and see the leading stocks (in that direction).

There is one nuance.  From the market or sector daily chart, your eyes are likely to be attracted to the most extreme day of a chart leg.  In the example above, 3/16 and 4/18.  Look carefully at these now.  The algorithm that ranks these stocks measures from the CLOSE of that extreme day, forward in time.  But the algorithm runs, starting the very next day, which you want to be the first strong day in the new direction.  This is important.  While your eyes probably find 3/16 and 4/18 on the SPX daily chart, to find the stocks ranking strongest AFTER that, you need to start on the first day AFTER those days, which are 20110317 and 20110419.

Chose the tool, MomoUP or ProMomoUP, and scroll back to your start date:  20110317.  That is the first and ONLY day the algorithm runs:  3/17 as measured from the CLOSE of the previous day.  So, on the line that shows 20110317, the algo is measuring from the close the day before to the close on 20110317.  (Thereafter, it’s more complicated but the same idea.)

Then, scroll forward from your start date to Day 2, the line just above.  To generate the Day 2 line, the algorithm ran for two days:  3/17 and 3/18.  Work your way up the spreadsheet and examine the evolution of the trend in your favorite sectors.  In ProMomo, looking at a stock chart compared to the numbers is fascinating.

Do you think examining the strength of past trend legs can lead you better decisions than you might have made without it?  My answer is yes and no.  It sometimes works and sometimes doesn’t.  Don’t expect to pick the single strongest stock in the future from looking only at the past.  That’s a myth.  History rhymes, but it doesn’t repeat.  Also sector rotations trash the whole concept.  I’m always looking this way, however, and numerous studies and some trading have benefitted (or really kicked ass) from analyzing this way.  I also think that enterprising quants will improve on this method.

Momo and ProMomo are very similar, and they are related to the Persistence Lists, as well.  All use the same, unique relative strength algorithm, which is proprietary.  The algorithm measures relative strength of a stock, compared to a population of stocks, through a period of time, measured in days.  In the above examples, we were picking some periods of time:  3/17 to whatever date you choose.  Momo and ProMomo have up to 10 days available starting on any available start date from the past several months.  The algo returns high numbers, up to almost 100 for high relative strength in the UP direction, and low numbers (down to almost zero) for high relative strength in the down direction.  Remember this.

MomoUP shows the stocks with rankings 95.0 and above, the top 5%.  MomoDOWN shows the stocks with rankings 5.0 and below, the bottom 5%.  ProMomo works the same way except it gives the top 10% and bottom 10%.  Hope this is clear.

Off the subject, but, in contrast, the Persistence Lists use the same algo, but measure from starting days I choose, to the present (which often exceeds 10 days).  I choose the starting points the same way described above.  The Persistence Lists each benefit from several starting points, typically 3-5.  They are listed in each blog post.  Take a look at them, now, and find them on a daily chart of $SPX.  Like the Momo Tool, the Persistence Lists show the top/bottom 5% of stocks.

Also, off the subject:  Suppose you want to examine the charts of all the Energy and Metals stocks through a period of time.  First, clear the ListBuilder.  Then, use the tool of your choice and select the cells that represent the dates and sectors you want to examine.  Then, at the top, click the Selection–>ListBuilder button to copy your symbols to the ListBuilder.  Do this as many times as you like, but you probably don’t want to mix UP and DOWN symbols.  When you have them, select the ListBuilder tab at the bottom and you will see all your symbols.  Duplicates have been removed and number of times a stock was selected is counted.  You can sort and filter these using normal Excel methods, or just use all of them as they are.  You can copy them from column 1 to your toolset.  But if that’s not convenient, click the Finish button to put your symbols into several other formats, one of which might be more convenient, depending on your toolset.

You can paste the URL into a browser and view the charts on finviz.  If you use Worden TeleChart, hit the button to generate a list that can be imported into it.  Both, very convenient.

Hope this makes sense.  Contact me if you have questions:  daytrend at gmail dot com.