Saturday, March 27, 2010

A Fresh Look at Demand/Supply Momentum

An older book that I'm rereading--and finding useful--is Constance Brown's text on Technical Analysis for the Trading Professional. She emphasizes unconventional ways to construct and interpret conventional indicators, many of which are quite creative and useful.

I used ideas generated by her work to configure a momentum indicator based upon the Demand and Supply data that I post each morning via Twitter. The scale is different, so that we get more uniform peaks and valleys in the data, with momentum frequently leading price change.

Note that we've been seeing higher prices with successive pullbacks in momentum, the hallmark of a bull market. Price has held up well during the recent momentum retreat, leading me to believe that the bull market has not yet given up. That being said, we're not quite at momentum lows that have characterized recent intermediate-term buying opportunities.