#198: Fading Momentum

micksonmatch
December 11, 2024

S2N Spotlight

A reader asked me if I could include a screener that looked for fading momentum. It is one thing to build a screener that looks for rare events and another to build one with rules that generate a signal and apply across a wide range of symbols.

In the interests of learning, I will share a simple approach I used. I am happy to try a different approach if someone has a better idea for measuring fading momentum. You will soon realise it is difficult to find a rule that provides consistent results across a broad range of symbols. However, a good, robust set of rules, I think, will be useful as a screener alert to investigate further.

Fading Momentum Setup Conditions

The idea I used was I created 2 RSI indicators. A long-term one with 54 days and a short-term one with 21 days. The long-term RSI needs to be above a threshold I chose as 60. The short-term RSI needs to be below that 60 threshold. A lower short-term RSI versus a higher long-term RSI signifies diverging momentum.

The results of these 2 symbols provide very different results. I can code any idea for a fading momentum, so hit me with ideas. I have one principle that I am pretty strict with. The parameters need to be robust for a wide range of assets. I am not into trying to curve fit anything with hindsight bias. If they pass a sensibility test, I will try it.

S2N Observations

Something strange unfolding on the other side of the Great Wall. Bond yields are seriously being driven down. Xi must be hitting the buy button on repeat just like my granny used to at the casino slot machines. I suspect we are witnessing a huge amount of QE (quantitative easing), that is, the government buying its own debt with its various on- and off-balance sheet entities, prepping the market for a low-debt environment bonanza.