Our Observations: Short-term momentum continued to reverse from earlier lows but has yet to reach new highs, leaving the market vulnerable to a correction. Energy and metal commodities have reversed sharply to the downside as result of several economic indicators showing higher supplies and slowing inflation. Given this mixed picture, we think it is prudent to remain cautious as the possibility of a correction still remains.
Momentum measures the rate of acceleration, either positive or negative, in a security’s price and may indicate which markets are positioned for gains or losses. Investing based on momentum entails establishing long positions in securities with positive recent returns and short positions in those with negative recent returns. Momentum in asset classes may illustrate the development of trends in the market.