Stock Market Negative Momentum : A Much Needed Breather

by | May 31, 2008 | Asset Management, Point and Figure

Just about the time Mr. & Mrs. Jones realize “hey that stock market is start to look pretty good!” is when the positive momentum often starts to fade — and often swings to a negative weekly momentum.

And that’s precisely where we stand today.

We have some cash on the sidelines. Some clients have a lot of cash on the sidelines. But understand, we’re entering a phase where the momentum has been negative for almost two weeks. On top of that, some of the short-term indicators I use to measure risk in the market have just recently given sell signals.
Momentum swings positive and negative, on average, for around 6 to 8 weeks. Meaning, the “green light” goes on for 6 or 8 weeks, then the yellow light turns on for 6 or 8 weeks. Sometimes it’s only 4 or 5 weeks, sometimes it’s 10 or 11 weeks. You get the idea. And also, every now and then, the red light comes on.

So when the market has been good, a stretch of negative weekly momentum for 6 or 8 weeks gives mutual funds and stocks a healthy breather — a pullback — to buy more, or to get in if you missed something earlier.

Sometimes negative weekly momentum provides a few weeks where the market just “hangs out” and does nothing, goes nowhere. But sometimes negative weekly momentum and short term sell signals are the start of a new turn down in the market.

So, it’s not fatal, but we’ve switched from a green light to the yellow caution light. I want to be deliberate and slow in putting money to work over the next few weeks. We’ll see what unfolds, and act accordingly.

Join our Newsletter


Future-Proof Your Finances

Download the 25-Year Success Strategy

Enter your email & get this free PDF download to help you prepare for the next 25 years.  We will send periodic updates as well. Unsubscribe at any time.

You have Successfully Subscribed!

Share This