Though conventionally momentum is understood as an oscillator that defines overbought and oversold condition, momentum can also be defined as a detrending cycle calculated on an asset price. When the cycle is up, prices are strong and vice versa. When the cycle reaches an extreme high, it’s an overbought situation and vice versa. Interpreting gets tricky because asset performance can be different for different degrees of time i.e. the trend for different degrees of time can be different. On a daily time frame performance of an asset could be overbought and ready to reverse. On a weekly time frame performance could still be positive and have no signs of reversal. On a monthly time frame performance price may have not have completed a 24 month bear market yet. While on a quarterly time frame the asset might be already in a major multi decade bull market.
How can this happen? This does happen. And this is what ROC momentum is suggesting on Indian Nifty. On daily it’s suggesting 5,750 as high potential resistance reversal, on weekly ROC is still positive and does not confirm the daily view that 5,750 would really be a serious resistance, monthly ROC is still negative from the 24 month bear market and still below zero line (which is conventionally interpreted as the first sign of change of trend), while quarterly ROC momentum never fell below zero after 2004 low. According to the quarterly ROC Indian markets never entered a cycle degree bear. So what is the problem? The problem is that momentum does not harness different degrees of time in one common indicator. There are special indicators like Pring’s KST that attempt to harness multiple degrees of time. Maybe this is why it’s called Know Sure Thing (KST). We need more indicators like KST because a trader does not want to look for a reversal based on daily at 5,750 and get whipsawed by a move up to 5,800 or 6,000.
Another way to create a momentum indicator is to understand whether an asset is overbought and oversold in a group. We ranked Nifty in a group of 1000 assets and we ranked it’s performance on a scale of 1 to 100 for three time frames viz. weekly, monthly and quarterly. We got the Jiseki cycles for nifty. Jiseki also studies performance, but unlike conventional momentum it looks at relative momentum in a group. This is how Jiseki harnesses various degrees of time. The grey mode is when all three time degrees have positive momentum and the sandy colored mode is when the momentum for Nifty is negative. We don’t have a grey mode yet and this is why Jiseki momentum is suggesting a potential reversal before anything on Nifty. Prices are at previous highs. We think a multi week reversal is near. March is known for reversals. Let’s see how our positive Elliott view reconciles with our Jiseki momentum view in months ahead.