This indicator is based on the assumption that security prices go through predictable changes within the same period of every year: a quarter, month, holiday period, peak period.
Momentum is a synonymous with performance. It measures the percentage change in a stock price over a certain period of time. For example: “S&P 500 fell 10% this week”
Momentum is a highly significant measure for market participants. It helps gauge the size of a move, and provides psychological benchmarks. For example, when the market falls 20% it is considered to be in a “bear market”.
Momentum is used to gauge entry points and the strength of a trend. Strong price rallies are often seen as a sign of renewed interest in the stock, possibly by investors anticipating good news. On the other hand, big price drops are often seen as a sign of capitulation in the stock, possibly by investors anticipating bad news.
Momentum is the measure of percentage change in price over a certain period of time, from a day to a year or more.
The chart below shows the trailing PE for SPX in the last ~50 years.
Momentum is used to gauge whether the market is trending or conversely has reached overextended levels.
For example, TOGGLE observed that whenever Costco’s 1W and 12M momentum turned positive, it historically returned a median increase in price of 13.52% over the following 3M.