Measuring Market Momentum - Part 1 of 3

A very astute investor and reader of this site asked me an important question...  "How do you determine your Market Momentum rating?"  I have to admit... I've been avoiding this question for the most part... although I did spend a few moments here sharing a few insights.  Perhaps it's because of the lack of scientific analysis behind it.  Perhaps I recognize my Market Momentum rating may be as erroneous as the next guy's.  Well, whatever the reasons... I've decided to "come clean" and provide you with an overview of how I determine my Market Momentum rating - found on the top right side of this website every day!


Before I do, let me share a few reasons why I think it matters...  I promise, I'll get to the question tomorrow.

1. Market Momentum places limits on most individual stocks.  Consider the overall Market Momentum at the end of 2008 and beginning of 2009... now randomly choose a stock and overlay its chart on the Market's chart.  I'd suggest 7 of 10 stocks will have a similar pattern.
2. Market Momentum is a measurement of most individual stocks.  After all, the Market goes up or down when the principle stocks, and usually the majority of stocks, move up or down.  Remember, the Market is made up of individual stocks.
3. Market Momentum is like receiving an insider perspective as to the likelihood of success for a stock, at least in the short-term.  If the Market Momentum is bullish, similar to my rating from April 2009 - September 2009, almost any stock (7 of 10) you own will be pulled up with the Market.  The same is true during bearish times.  The challenge is during these more volatile days like we've seen for the past 4-5 months.