The rate of change (ROC) indicator is one of my favorites. It is great for identifying when a stock is ready to make a reversal in trend or to tell when the buying or selling is exhausted. Below is the basic calculation taken from www.stockcharts.com. Â
“The Rate of Change (ROC) indicator is a very simple yet effective momentum oscillator that measures the percent change in price from one period to the next. The ROC calculation compares the current price with the price n periods ago.
ROC = ( (Today's close - Close n periods ago) / (Close n periods ago) ) * 100
The plot forms an oscillator that fluctuates above and below the zero line as the Rate of Change moves from positive to negative. The oscillator can be used as any other momentum oscillator by looking for higher lows, lower highs, positive and negative divergences, and crosses above and below zero for signals.�
I am most interested in divergences on the ROC. When the stock makes an equal or new low, but the ROC is not making a new low, that is a sign that the selling is weakening and buying could be strong. Vice versa if a stock is making a new high and the ROC is not following suit.Â
Below are several charts with a bullish ROC. Remember that this market environment is very hostile and if the SPX can’t hold 850, these bullish signals could be quickly erased. A close above 850 could give nice confirmation to the ROC bulls.
 
 
Happy Trades!
Jeff
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