Gating volatility-momentum divergences with a Trend filter

Inspect the paired overlay

A rate-of-change momentum oscillator for an equity index can be plotted against the same oscillator for that index's volatility gauge. The overlay is used to inspect crossovers, centerline events, signal-line events, and divergences.

The pairing is a comparison of two momentum series, not a stand-alone switch. The archive presents it as a way to see when equity-index momentum and volatility-index momentum agree, disagree, or drift apart.

What selected windows showed

Across several historical windows, a higher low in equity-index momentum together with a lower high in volatility-index momentum appeared before a later index bounce or the end of a decline.

In the 1994 to 1995 window, volatility-index momentum rose while the volatility series itself stayed relatively flat, and an equity-index pullback followed.

Several historical bottoms and correction endings showed a shift from a high volatility range into a lower range, or a drop of the volatility gauge below a prior low, alongside a higher or lower price low.

A bear correction is described as sharing a bear-market-style high volatility range while the index decline stays under 20 percent and lasts a shorter time.

Confirm the regime with a Trend filter

A close through a 200-day exponential moving average, often with a breakout of a prior index high, was used as the Trend filter that confirmed an uptrend had started or resumed.

Until that confirmation, mixed momentum remains an open question. After confirmation, the same overlay is read against the prevailing direction rather than as a reason to reverse it.

Why the pairing is incomplete

The paired momentum overlay is noted to produce whipsaws and is presented as incomplete without other tools such as moving averages or chart structure.

In one Nasdaq-100 uptrend window, eight bearish signal-line crosses of the related volatility oscillator were counted over nine months while equity-index momentum stayed above its centerline. That count is a reminder that volatility-side crosses can keep firing while the equity series remains in its existing regime.

Overlays that veto or time flips

A directional overlay that stays engaged through sideways congestion can generate extra flips. An Average Directional Index family directional-movement oscillator and a Stochastic oscillator are proposed as filters that keep those flips aligned with the prevailing trend.

Editorial reading: those two overlays do not replace the Trend filter. They only veto or time a directional flip while the Trend filter has not yet answered whether the regime has changed.

A bounce at the oscillator zero line is described as a continuation pattern to inspect inside a strong trend.