Massive Momentum Structure In Stock Market Is Breaking Down
Jesse Felder | Sep 01, 2022 04:30AM ET
A little over a year ago, I had the pleasure of interviewing massive momentum structure ” that had been building for years in the stock market, specifically in the Nasdaq 100.
Below is an updated version of that chart which plots the index on a monthly timeframe along with another plot of the index relative to its 36-month moving average. It is this second chart, which isolates the price momentum of the index, that has formed a long-term structure of some significance.
During the bull market that dated back to the 2009 low, the Nasdaq 100 Index formed a clear momentum range between roughly 40% (above the 36-month moving average) on the high side and 10% on the low side. The post-Covid rally saw a breakout above the upper end of that range, which represents the final “blow-off phase” of the bull market.
This year’s reversal is notable in that not only did momentum fail to hold support at the 10% level for the first time in over a decade, it also failed to hold the 0% level, a “declarative first leg of decline,” in Michael’s words. And even to the untrained eye, it should be quite obvious that a major change in character is now underway.
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