Russell 1000 MoMo
Russell 1000 Index 6-month Rate of Change Exceeds +20% - Objective Study
While +20% or -20% swings may seem arbitrary as indicators of bull or bear markets, their psychological impact on investors can be significant and enduring. Additionally, significant 'round number' thresholds in rate of change can serve as triggers for investor optimism or pessimism. These thresholds not only draw attention to market dynamics but also highlight the emergence of FOMO (fear of missing out) or FOBU (fear of blowing up).
The Russell 1000 Index just eclipsed a 6-month rate of change of +20%. Historically, similar signals have been highly indicative at the 6-month forward intervals.
Some considerations for the efficacy of ‘round number’ markers.
Signal of Positive Trend: Momentum thresholds typically indicate a sustained positive trend in the market. When a particular threshold is crossed, it suggests that the momentum is strong enough to continue in the same direction for a significant period. This signal can attract investors who seek opportunities to capitalize on upward trends.
Confirmation of Market Strength: Crossing a momentum threshold often confirms the strength of the current market trend. Investors may interpret this as a signal that the market has enough underlying strength to support further gains, thereby providing confidence to enter the market. Fear of Missing Out (FOMO): Investors may fear missing out on potential profits if they do not enter the market when momentum thresholds are breached. FOMO can drive investors to act quickly to capitalize on perceived opportunities, leading to increased market participation.
Psychological Impact: Crossing a momentum threshold can have a psychological impact on investors, creating a sense of urgency to join the market rally. The fear of being left behind or the desire to ride the wave of positive momentum can influence investor behavior and prompt them to enter the market.
The Russell 1000 Index comprises the top 1000 companies from the Russell 3000 Index, representing a broad spectrum of large-cap stocks. This index serves as a key benchmark for active money managers, guiding their selection from the universe of large-cap stocks. Established on December 31, 1986, its base value was set at 130.00. The representative ETF is the IWB.