Mike Santoli mentions two interesting technical measures in his streetwise column in Barron’s this morning: Triple digit stock momentum at tops, and the downward momentum of low priced S&P500 stocks at lows.


“LAST YEAR, WITH THE MARKET near what would prove its ultimate high, I noted a perverse pattern in which triple-digit- priced stocks were consistently outperforming other issues, a sign of momentum-chasing speculation (Streetwise, May 14, 2007).

We’ve come nearly full circle, as single-digit midgets abound and stocks are pounded harder once they lose a digit before the decimal place. Ned Davis Research tracks the price of the 25th-lowest-priced stock in the S&P, which tends to mark a low as bear markets culminate, as a marker of speculative juices having been wrung out of investors. It’s now around $6, near levels of the 2002 bottom, though not yet the 1974 low — near when Barron’s ran a story pointing to the abundance of sub-$2 stocks that were effectively warrants on the survival of American capitalism.”

If I understand this correctly, when $100+ stocks are out performing the markets, one needs to be somewhat cautious, as this is a dangerous warning sign? And when S&P500 stocks break below $10, and then underperform the broader index, this can mark a bottom?

Hmmm . . .

Both of these metrics makes some intuitive sense; Has anyone back-tested either of these? Can you show some (or point to) data that verifies any of this?


Welcome to the Mind-Numbing Market
Barron’s NOVEMBER 15, 2008


Category: Contrary Indicators, Markets, Technical Analysis, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

39 Responses to “Momentum Top & Bottom Signals”