DecisionPoint

"Model Behavior" - Focus on the DecisionPoint Price Momentum Model (PMM)

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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.

Carl Swenlin
About the author: is a veteran technical analyst who has been actively engaged in market analysis since 1981. A pioneer in the creation of online technical resources, he was president and founder of DecisionPoint.com, one of the premier market timing and technical analysis websites on the web. DecisionPoint specializes in stock market indicators and charting. Since DecisionPoint merged with StockCharts.com in 2013, Carl has served a consulting technical analyst and blog contributor. Learn More
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