Omega Point Blog

Momentum Inflecting

Omer Cedar

Momentum Inflecting

September 21, 2018

For the past few weeks, we've been closely following Medium-Term Momentum as it sharply climbed into Overbought territory. While we've talked about this factor a lot recently, it's been a very active signal in both our US and Global models, and we're now observing that Momentum is currently at an inflection point.


As a reminder, we define Medium-Term Momentum as cumulative return over the past 12 months excluding the most recent month.

US Model

At the beginning of the summer, Medium-Term Momentum was a Neutral factor, hovering around +0.05 standard deviations above the mean on 6/21. Over the next few weeks, returns fell to a mid-July trough of -1.56 SD below the mean. The factor then staged a sharp rally until hitting a peak of +1.87 SD above the mean on 9/13. Since then, we've witnessed a strong pullback on a cumulative (-1.21%) and normalized (+1.87 SD > +1.24 SD) basis.

MTM+US+20180921

Global Model

At the worldwide level, we see a similar, but even steeper pattern. Sitting in Neutral territory at the beginning of the summer, Medium-Term Momentum sold off on a normalized basis until bottoming out at -1.41 SD below the mean on 8/7. Returns then rocketed up to a 9/14 peak of +2.26 SD above the mean, and have since seen a dramatic downtick on both a cumulative (-0.6%) and normalized (+2.26 > +1.79 SD) basis.

MTM+WW+20180921 

The sectors that are currently most correlated with Medium-Term Momentum continue to be Software, IT, and Semiconductors.  

If you'd like to see what Momentum or any other factors look like in your portfolio's performance and risk profile, or would like to better understand how we measure the relationships between factors, please don't hesitate to reach out.

Regards,
Omer

PS - Click here if you'd like to learn more about factor trends