DecisionPoint

Finding Investments Using the Short-Term Trend Model and the PMO

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Finding shorter-term investments especially in a volatile market is very challenging. DecisionPoint has many tools for narrowing in on opportunities. One of our little known tools is the Short-Term Trend Model (ST/TM). Combine that model with our powerful Price Momentum Oscillator (PMO) and you should be able to narrow the field quite nicely. 


The Trend Model we use extensively is the Intermediate-Term Trend Model (IT/TM). This model compares the 20/50/200-EMAs. When the 20-EMA crosses above the 50-EMA, the IT/TM generates a BUY signal. If the 20-EMA crosses below the 50-EMA it is either a Neutral signal (50-EMA is above the 200-EMA when the 20/50-EMA negative crossover occurs) or a SELL signal (50-EMA is below the 200-EMA when the negative crossover occurs). The Short-Term Trend Model works the same way, only shifts to using the shorter-term 5/20/50-EMAs instead of the 20/50/200-EMAs. When the 5-EMA crosses above the 20-EMA it is an ST/TM BUY signal. If it crosses below the 20-EMA it is a Neutral (if 20-EMA is above 50-EMA) or a SELL (if 20-EMA is below the 50-EMA). This is a great tool, but it will turn up far too many results if that is the only screen used in a scan. For example, the scan below returned 53 results:

[type = stock] AND [Daily SMA(20,Daily Volume) > 50000]
AND [today's ema(50,close) > today's ema(200,close)]
AND [today's ema(5,close) > today's ema(20,close)]
AND [yesterday's ema(5,close) < yesterday's ema(20,close)]

So to clear the chaff, I also screen using the PMO. I added that stocks have to have had their PMO rising for 3 days but not generated a crossover BUY signal. The scan is below:

[type = stock] AND [Daily SMA(20,Daily Volume) > 50000]
AND[today's PMO Line(35,20,10)<today's PMO Signal(35,20,10)]
AND [today's PMO Line(35,20,10) > yesterday's PMO Line(35,20,10)]
AND [yesterday's PMO Line(35,20,10) > 2 days ago PMO Line(35,20,10)] 
AND [2 days ago PMO Line(35,20,10) > 3 days ago PMO Line(35,20,10)]
AND [today's ema(50,close) > today's ema(200,close)]
AND [today's ema(5,close) > today's ema(20,close)]
AND [yesterday's ema(5,close) < yesterday's ema(20,close)]

If you run the scan for today, you've narrowed it down from 53 to 8 results.

I picked a few of these to look at. First is Avis (CAR). There was ST/TM BUY signal generated today when the 5-EMA crossed above the 20-EMA. The scan picked this stock out because the PMO is bottoming and nearing a PMO BUY signal. Note that CAR broke out from a descending wedge. It appears the IT/TM also generated a BUY after a whipsaw Neutral signal had the 20/50-EMAs hugging each other tightly.

In the case of CDV.TO, I've marked the last few ST/TM signals. The EMAs are somewhat tangled, but the signals have been clear and relatively clean.

Groupon (GRPN) is a good example of how using both the PMO and ST/TM. Notice on the examples below, the PMO was in 'crossover' mode, either crossing over its EMA right at the 5/20-EMA crossovers or very near to them. Today's 5/20-EMA positive crossover is given more weight because the PMO is likely going to have a positive crossover its EMA tomorrow.

Please note that my including the charts above is not a recommendation to BUY or SELL. My goal is to help you screen and then make your own decisions based on your risk tolerance. Charts that come up on this or any scan of this type are considered "flagged" for your review. Stay tuned for more ways to use DecisionPoint tools to find investment opportunities. THIS WEDNESDAY, during the DecisionPoint LIVE! Webinar, I'll be going over how to use the DP Tracker reports to target investments. Sign up today!

Happy Charting,
Erin

Erin Swenlin
About the author: is a co-founder of the DecisionPoint.com website along with her father, Carl Swenlin. She launched the DecisionPoint daily blog in 2009 alongside Carl and now serves as a consulting technical analyst and blog contributor at StockCharts.com. Erin is an active Member of the CMT Association. She holds a Master's degree in Information Resource Management from the Air Force Institute of Technology as well as a Bachelor's degree in Mathematics from the University of Southern California. Learn More
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