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It usually takes an extended bull market to push “monthly momentum” to lofty levels.
The above 2-pack looks at the S&P 500 and the Dow Jones Transports on a monthly basis, back to the early 1980′s. The upper lines represent monthly momentum.
As you can see momentum reached lofty levels back in 1987, 2000, and 2007, before turning lower in the months to come. The rally off the 2009 lows in price and momentum now has reached levels not seen too many times on a monthly basis over the past 30-years!
At the same time momentum is high, both indexes are near some resistance that could become influential to buyers and sellers.
In my humble opinion, monthly momentum is NOT a very good “timing” tool, as momentum can stay high for a period of time… but it can give you an idea of when investments are getting a little “long in the tooth” on a long-term basis.
Knowing this can be very beneficial when it comes to portfolio positioning for long-term monies.
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