Is the Momentum Trade Bubble About to Burst? – Analyst Jonathan Krinsky Discusses Market Inflection

Mark Eisenberg
Photo: Finoracle.net

Is the Winning Momentum Trade Losing Steam?

Top technical analyst, Jonathan Krinsky, suggests that the winning momentum trade may be approaching an inflection point, signaling a potential shift in market dynamics.

The GS High Beta Momentum Long Index has been performing exceptionally well this year, with a 14% increase so far in 2024. On the other hand, its counterpart, the GS High Beta Momentum Short Index, has experienced a decline of 7% over the same period.

Krinsky highlights that the last time such a significant movement occurred between these two indices was in November 2022, which marked a short-term turning point for the market. This raises concerns that the momentum trade may be losing momentum itself, as it appears to be overbought, potentially leading to a momentum unwind.

To illustrate the stretched nature of the momentum trade, the iShares Edge MSCI USA Momentum Factor ETF is currently trading 26.5% above its 200-day moving average, reaching its widest difference in a decade. Krinsky comments, “This is not a call on the overall market, but we are likely nearing an inflection in momentum, where high-momentum falls, low-momentum rallies, or both.”

While the equity rally has been helped by easing inflation and the expectation of reduced borrowing costs later in the year, a higher than anticipated Consumer Price Index (CPI) number may create uneasiness among stock bulls. Additionally, small-cap growth stocks are showing signs of breaking out of a two-year range, while overlooked mid-caps are on the verge of testing their all-time highs from 2021.

In terms of specific stocks, Academy Sports & Outdoors, Camping World, ETSY, and Sonic Automotive are among those that exhibit constructive charts and have a high short interest as a percentage of their float.

As U.S. stock-index futures remain mildly mixed, the dollar sees a slight increase in strength, while oil prices decline and gold trades at around $2,020 an ounce. Keep an eye on the evolving momentum trade as it may signal a turning point in the market.

Analyst comment

Positive news: The winning momentum trade has been performing exceptionally well, with a 14% increase so far in 2024.

Neutral news: Technical analyst Jonathan Krinsky suggests that the momentum trade may be losing steam and reaching an inflection point, potentially leading to a momentum unwind.

Market prediction: The market may experience a turning point as the momentum trade loses momentum and high-momentum stocks fall while low-momentum stocks rally.

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Mark Eisenberg is a financial analyst and writer with over 15 years of experience in the finance industry. A graduate of the Wharton School of the University of Pennsylvania, Mark specializes in investment strategies, market analysis, and personal finance. His work has been featured in prominent publications like The Wall Street Journal, Bloomberg, and Forbes. Mark’s articles are known for their in-depth research, clear presentation, and actionable insights, making them highly valuable to readers seeking reliable financial advice. He stays updated on the latest trends and developments in the financial sector, regularly attending industry conferences and seminars. With a reputation for expertise, authoritativeness, and trustworthiness, Mark Eisenberg continues to contribute high-quality content that helps individuals and businesses make informed financial decisions.​⬤