Mind the Momentum When It Comes to the Markets

Using a multi-factor strategy in the current market landscape could help investors identify opportunities, but if you’re looking to drill down to one factor, momentum shouldn’t be forgotten. In today’s volatility, when markets can move quickly with speed, it’s also important to mind the momentum.

“Another factor that resumed its place as one with a strong connection to returns in March was momentum,” a Morningstar article by David Carey and Tom Lauricella noted. “Momentum is based on the premise that stocks that have recently outperformed will continue to do so, and those that have underperformed will stay behind. The momentum factor describes how much a stock has risen in price over the past year relative to other stocks.”

“Timothy Strauts, Morningstar’s director of quantitative research, says the fact that low-momentum stocks are once again underperforming shouldn’t be much of a surprise,” the article added. “Many of those companies were likely already struggling on a relative basis–hence their shares’ poor momentum profile–and the economic shock likely only magnifies those woes. Plus, he said, many of the higher-momentum names have been technology stocks, which could weather the downturn better.”

Leveraging the Tech Sector

Traders looking to play the bullish side of tech can use the Direxion Daily Technology Bull 3X ETF (NYSEArca: TECL). TECL seeks daily investment results of 300% of the daily performance of the Technology Select Sector Index, which includes domestic companies from the technology sector.

On the other side of the trade, there’s the inverse ETF Direxion Daily Technology Bear 3X ETF (NYSEArca: TECS). TECS seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the daily performance of the Technology Select Sector Index. The index is provided by S&P Dow Jones Indices and includes domestic companies from the technology sector.

From a relative strength standpoint, the Nasdaq-100 keeps flirting with the oversold territory–time to buy?

^NDXT Chart

^NDXT data by YCharts

Capitalizing on Online Retail Usage

With the increased reliance of online retail amid the “social distancing” thanks to the coronavirus, a non-leveraged ETF ton consider is the ProShares Online Retail ETF (NYSEArca: ONLN). The fund seeks investment results that track the performance of the ProShares Online Retail Index—it tracks retailers that principally sell online or through other non-store channels.

The index uses a modified market-capitalization weighted approach, is rebalanced monthly and is reconstituted annually. Retailers may include U.S. and non-U.S. companies. To be eligible, retailers must: be classified as an online retailer, an e-commerce retailer, or an internet or direct marketing retailer, according to standard industry classification systems; have a market capitalization of at least $500 million; have a six-month daily average value traded of at least $1 million, and meet other requirements.

For more market trends, visit ETF Trends.