Postcards: Six Rules for Negative Momentum

This market is under stress - Treasury bonds, inflation worries, and China are weighing on the market. Here's how to prepare for what may arrive this week.

Dear Fellow Expat:

In my world, momentum is a measurement of capital inflows and outflows in thousands of stocks. I take the measure, then boil it down to a simple red, yellow, or green.

We’re coming off the longest stretch of positive inflows and price gains for the S&P 500 and the Russell 2000 since late 2021. So, now is a great time to discuss some important rules for trading in negative momentum.

We have had three straight days where intraday momentum has turned negative before a surprise bounce back. But that is the trend when things go sideways. There is a trend of lower highs and lower lows. With energy prices surging in recent weeks, we could see a surprise CPI reading on inflation.

Now, if we go negative tomorrow… and we stay there, you need to be prepared.

I use a variety of technical indicators to determine how money is moving — but none are more important than the Money Flow Index, the Relative Strength Index, the MACD and the ADX 14. 

And when the colors change, all hell can b…