Momentum Finally Reaches Extreme Lows – When’s The Rally? by Jennifer Thomson, Gavekal Capital Blog
Stocks in pretty much every region and sector are stuck in persistently negative momentum configurations, as defined by the low percent of issues with a 50-day moving average above that of the 200-day moving average. Typically, when this indicator reaches an extreme where just 20% of issues in a group exhibit constructive momentum tendencies, we get a sharp and sustained expansion in that percentage after about three to four months of that figure hovering near the bottom. For our All Country Index, that (near) 20% level wasn’t reached until last week.
Similar trends persist across geographies.
Most sectors also follow the overall trend.
Careful readers (or those with better visual acuity) will note the relative resilience of the Counter Cyclical sectors– especially Consumer Staples stocks, where about 50% of the issues have a 50-day moving average above the respective 200-day moving average. Whether these more defensive groups will join the other sectors in challenging lows on a momentum basis (i.e. reach that 20% level) is questionable. After all, this indicator hasn’t fallen much below 40% for Consumer Staples issues since back in 2009. And 30% (where they are now) looks like the ‘extreme’ low for Health Care stocks’ relative moving averages.
As we pointed out above, this particular indicator of stock momentum would seem to imply that we have a few more months of widespread consolidation before a real chance at a truly sustainable rally. Will a new group lead such a move? More on that here (in case you missed it).