Saturday, November 14, 2009

A Look at Short-Term Stock Market Momentum

Above is a proprietary measure of short-term momentum, in which 1.0 represents a neutral condition; readings greater than 1.0 represent upside momentum; those below capture downside momentum. Readings below .98 have tended to be good intermediate-term buying opportunities; readings above 1.02 have tended to lead price intermediate-term highs.

Those interested in the relationship between momentum and market timing of cycles might take a look at Terry Laundry's work in the area.

Note that we appear to have made a peak in upside momentum late this past week; markets are most prone to reversal when readings > 1.0 no longer are associated with fresh price highs.