PMO Configurations
Sideways Wiggle
A typical PMO formation is seen in the accompanying chart, which highlights the fact that not all PMO crossover signals may be interpreted literally. PMO movement during a consistent upward price trend is represented by the red-circled area. The PMO travels horizontally since the price movement is not very volatile. The fact that the PMO remains above the zero line testifies to the strength of the price move; however, minor zigzags in price movement cause the PMO to whipsaw above and below its 10-period EMA, generating many unprofitable crossover bull signals. This chart also illustrates how sideways wiggling will eventually come to an end and how it can provide hints that the trend’s end is approaching.
Bear Kiss
The PMO frequently performs three different topping actions, the last of which is the “bear kiss.” This classic structure provides further confirmation that a marketable top is present. When the price index has seen a significant increase and the PMO has become somewhat overbought, we begin searching for this formation. Although it doesn’t always happen at the top, this configuration increases our trust in the signal’s dependability.
A false PMO top is the first action. Overbought PMO tops always accompany major tops, although not all PMO tops indicate significant price peaks. A price top is most likely only a few weeks away, as the fake top warns us.
A crossover sell signal, which is produced when the PMO (green line) crosses down through its 10-period EMA (blue line), will then follow a somewhat higher PMO top. These signals can be tentatively taken at face value when they occur at extremely overbought levels, but if they are followed by extremely strong price action, prices may reach even another new high, which would trigger the PMO to start rising once more. The PMO eventually reappears when prices roll over from the last peak, this time reaching the top after barely “kissing” the 10-period EMA’s underbelly. Some call this the “kiss of death,” but a bear kiss seems more fitting because this sounds a little theatrical. Besides, there is a reciprocal formation at important bottoms, and the term “bull kiss” seems more apt than “kiss of life.”
Note that an important aspect of this analysis is that the price index has broken a rising trend line in conjunction with the bear kiss.
Bull Kiss
A price pullback following the initial up thrust that creates the crossover signal is what causes the “bull kiss,” which happens soon after a PMO crossover buy signal. The pricing behavior of the bull kiss and bear kiss differs, despite the fact that they are practically equivalent but opposite formations. The bull kiss typically occurs at a higher price low in a new rally, whereas the bear kiss is typically a non-confirmation that occurs at the rally’s final price high.
Clean Signals
While the bull and bear kiss formations are quite common, it is also possible to have very clean PMO reversals and crossovers, which lack the gyrations associated with blow-offs and retests as the change in price trend is relatively smooth. The point is that reversals and crossover actions can cover a wide range of configurations. A study of the charts will lead to a better understanding of the kind of price action that begets a certain type of PMO behavior. The PMO behavior also gives clues as to what kind of price behavior to expect.
The Bottom Line
The DecisionPoint Price Momentum Oscillator (PMO) can be used as both a measure of relative strength, momentum and overbought/oversold conditions. It can also be used to determine price reversals using bull and bear crossovers.
What is the Contrast Between Favored Stock and Normal Stock?
Day Trading Guide for August 7, 2024: Intraday supports, resistances for Nifty50 stocks
