At Nasdaq Dorsey Wright, we use measures of momentum and overbought/oversold distribution readings to aid in our interpretation of a stock, index, ETF or mutual fund. Following weekly momentum is very helpful when timing trades and often times a momentum change in a sector-based ETF can have implications for the group as a whole. Weekly momentum is an intermediate-term tool, as changes in weekly momentum last seven weeks on average.

Weekly momentum is essentially a comparison between a one-week moving average and a five week moving average. These moving averages are exponentially weighted and smoothed, but the foundation of the calculation is a comparison between these averages. Signals are given when the shorter-term average (one-week) crosses the longer-term average (five-week). For instance, when the one week moving average crosses above the five-week, we say the weekly momentum has turned positive. This would suggest higher prices for the ETF in the intermediate-term. When the one week moving average crosses below the five-week, we say the weekly momentum has turned negative. In the same sense this would suggest the increased likelihood for a pullback or consolidation within the given ETF.

Momentum calculations are used as a supplement, not a substitution, for the Point & Figure chart or Relative Strength chart. When we begin evaluating the individual ETF chart, the three most important parts are the relative strength, trend, and the individual pattern. Once we have determined that those three things are in our favor, then we look to the timing tool of momentum to better refine our entry and exit points.

For ETFs turning to positive weekly momentum, look for those whose relative strength chart is in a column of Xs, and those whose trend and chart pattern are positive. For those ETFs with positive momentum, but negative Point & Figure attributes, a bounce up can provide an exit point. On the contrary, for ETFs turning to negative weekly momentum, but with strong technicals otherwise, it suggests our entry points should be on pullbacks, or after a potential consolidation. Finally, negative weekly momentum changes that occur in technically weak ETFs can be considered as short ideas. The following table shows those ETFs having both positive changes in weekly momentum this week, as well as negative changes.