Momentum Investor's Analysis Of Smith International, Inc.
Momentum Analysis from Historical Prices and Volumes of SII common stock.
Although the term 'Momentum Investing' is sometimes used to describe a simple strategy of buying on rising prices and selling on on falling prices, a more sophisticated approach is possible. In Physics, 'Momentum' is defined as the product of the velocity and the mass of a moving body. It is possible, by analogy, to define 'Market Momentum' as the product of the Price Movement, and the Volume during a discrete time span. This definition of Momentum is sometimes written as 'pmvMomentum'.|
The chart shows weekly average momentum, which is an unbounded oscillator about the zero line.
The "quality" of Momentum is of interest. It may be characterized in several ways. One of these is the Volume Portion Index. (VPI) The midline of the VPI is 50%. If the change in pmvMomentum from one period to the next is due to an increase in the Transaction Volume, this index will be over 50%. If the change is due to increasing Price, then the index will fall below the middle value. |
The VPI is a bounded oscillator ranging from 0 to 1.
The 'Change in Volume over Change in Price' or CVCP is understood in these terms: From one period to the next, the Momentum (Price times Volume) changes. Part of this change may be due to a change in Price, and part to a change in Volume. This numeric statistic characterized the change in volume accordingly. For example, if the Momentum doubles, it may be due to doubling in price, or doubling in volume, or some combination between. The resulting Momentum value is identical in either case, but the CVCP will provide characterization of the change.|
Plotting on a scale of price vs volume rather than the usual price vs time, gives us a scattergram chart. Here the Volume increases from left to right. The days with the highest volume and price end up in the top right corner here. This scattergram provides the basis for some more interesting views that follow.|
The Price by Volume Swirl Chart is based on the scattergram, but fills in the paths between the price-volume points from one day to another. Colors denote the price-volume relationships. For instance green indicates rising price on rising volume, and red indicates prices falling on falling volume. The orange and purple are mixed cases. These charts often form loops, where the price and volume both return to similar levels after a period of time. Those who study these charts differentiate between the clockwise and counter-clockwise loops. The clockwise loops are supposedly bullish. |
This is the same Price-Volume Loop Chart with considerably more data on the screen. Inside, we review more than 1000 years of market data to test the effectiveness of Price Volume Loop Analysis.|
For Subscribers: More Momentum Analysis of Smith International, Inc.
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