We’ve begun talking more about the Price Momentum Oscillator (PMO) as it relates to finding “pure strength” and “pure weakness”. What it all comes down to is the zero line and the PMO’s behavior above or below.
We review the Magnificent 7 charts frequently and we noticed that both Apple (AAPL) and Google (GOOGL) are displaying “pure weakness,” as far as the PMO is concerned. Pure weakness is defined by the PMO moving lower or moving sideways below the zero line. The distance the PMO is away from the zero line determines the veracity of the condition.
We can see with AAPL, there was a period of “pure strength” back in November. The PMO had moved above the signal line and was rising strongly. When it topped and began to fall above the zero line, it was a sign of diminishing strength. Pure weakness set in when the PMO dropped beneath the zero line, and it is currently in effect. Had we followed the signal, it would’ve saved quite a bit of downside.
The rest of the chart looks pretty terrible, as well with a negative RSI and Stochastics below 20. Additionally, relative strength is failing across the board.
We see a similar setup on GOOGL, but this time the signal is arriving NOW as the PMO dropped beneath the zero line. While this doesn’t mean a precipitous decline is ahead, it does tell us to tighten up stops, at the very least.
There are signs that there might be further decline ahead for GOOGL. The RSI is negative, and Stochastics are below 20. Additionally, relative strength is failing across the board.
Conclusion: The PMO can be used to determine the strength or weakness in a particular move based on its location and direction around the zero line. Based on the PMO, both Apple and Google are displaying pure weakness.
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Helpful DecisionPoint Links:
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
Erin Swenlin 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.
