There has not been a lot of buying lately, with markets down some 4%+ from the recent Top, aka ATH. What motivates this is unclear, as earnings season I think is behind us. Tariffs have come into play, and the world is trying to become more peaceful both in the Middle East and in Eastern Europe.
So, does the reluctance to buy, or the insistence to sell, mean that peace has been priced in? Potentially. With DeepSeek taking out (some of the) air from the AI-related boom stocks, is it tit-for-tat tariffs that are undermining confidence to buy?
Lots of questions, and a lot of speculative answers to it. I guess it’s time to polish the game theory toolkit together with momentum. The old adage is that momentum indicators work best when in a downtrend – I would not test that saying with my own money.
My still-in-beta multiscale momentum indicator says that there has been a lot of selling as most RS values are close to lower bounds, with the notable exception of relative strength at 21 and 34 day horizons. To me, this indicates that there has been quite some selling. But if we are seeing a change from bull to bear market, i.e. we are at an inflection point, then there could be more selling to come and the relative strength could move even lower. Again, this indicator shows where momentum has been, not where it is going. Using the indicator to trade would very much be like driving forward while looking in the rear view mirror. That’s not going to work out well.
It would be very interesting to find out (i.e. analyse) when the indicator is depressed to the extent that rather than sell, investors and traders choose to hold on to their positions rather than sell at the depressed price levels. Another analysis to perform at some point in time.
