Displaying items by tag: momentum

Thursday, 25 April 2019 11:41

Beware of Fake ETF “Factors”

(New York)

Any investor in ETFs will have noticed the marked rise of “factors” over the last few years. These are technical or conceptual overlays that managers use to create a theme for a fund. They are generally predicated on some type of data, like “quality” or “momentum”, both of which are well-studied. However, lately there has been an explosion of new factors which are being employed in funds. The problem is that many of these are not being observed on a long enough timeline to see if they are relevant. In practice, this means that a lot of funds are predicated around strategies that do not have any proof of concept.


FINSUM: So we have mixed feelings about this. On the one hand, some factors seem clearly frivolous, while others which may also be quite new, seem to be a good angle on the current market environment. The key is to be very discerning in choosing these types of funds.

Published in Wealth Management
Monday, 11 March 2019 14:12

Momentum is Waning in Stocks

(New York)

There are a lot of worrying signs out there right now, but one thing that has bolstered optimism is the strength of the stock market in 2019. That said, there are signs appearing that underlying fundamentals are weakening. In particular, daily moves are shrinking, down from 0.9% in the 4 months leading to February, to just 0.4% in February. The slowdown in trading momentum is not only worrying in its own right, but also because the exact same trend appeared before the falls of February and December 2018.


FINSUM: Our counter argument is that average index moves were quite small through several solid years between 2014 and 2018, so it dos not necessarily indicate a problem.

Published in Eq: Total Market

(New York)

This market is going against all precedent. December is usually a strong month for stocks, with momentum usually dominating trading. However, everyone knows this month has been brutal, continuing the strong volatility and losses that have plagued the market since October. The same old problems are dogging the market too—rising rates, a trade war, and the threat of recession. What has really gotten worse is that part of the rate curve has inverted, which seems to have really spooked investors globally. Last week the S&P 500 saw it worst performance since March, falling 4.6% for the week.


FINSUM: Here is a question for our audience: what is going to stop this market from falling? There are so many factors pushing the market down, none of them easy to resolve. This makes us worry that there is no floor on prices right now. Even the Trump-Xi “truce” didn’t save things.

Published in Eq: Total Market
Monday, 03 December 2018 12:30

10 Stocks to Play This December

(New York)

December is usually a very good time to go with momentum stocks. What has been doing well the previous 11 months seems likely to continue in December, so says Barron’s. Momentum investing as a style has been well-founded in studies, but what is less well know is that it is particularly strong in the last month of the year. In fact, the momentum effect for stocks in December is 10x greater than in the other months of the year! Interestingly though, the effect is completely reversed in January, when tax-loss selling is concluded. With that in mind, here are some stocks to look at in the new year (the losers from this year): General Electric, Cognex, Dentsply Sirona, Western Digital, Adient, Bristow Group, McDermott International, Owens & Minor, Synnex, U.S. Silica Holdings, and Winnebago Industries.


FINSUM: This is quite an interesting angle as the losers from one year usually fall hard in December and then perk up in January.

Published in Eq: Total Market
Friday, 05 January 2018 10:06

A Correction is Near

(New York)

Barron’s has been getting increasingly bearish of late (with the Dow at 25,000 now, we can understand why!), and they have published a bearish article laying out the case for why a correction is looming. The argument has a lot to do with price action, and what the market is showing is that despite reaching a new high, it is coasting rather than gaining momentum. The last trading day of the year—a 118-point loss—was a worrying sign of slowing momentum, and many technical indicators now point to falling prices soon.


FINSUM: One key takeaway from this piece is that despite January being considered a good month for stocks, that is not the case in midterm election years.

Published in Eq: Large Cap
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