A momentum-focused fund that’s gained favor among traders could be in for a turnaround, according to BTIG. The iShares MSCI USA Momentum Factor ETF (MTUM) is trading about 26.5% above its 200-day moving average, said Jonathan Krinsky, chief market technician at the firm. That’s created the widest gap between the two levels in around a decade — and signals a change of course could be near, he said. “This is not a call on the overall market, but we are likely nearing an inflection in momentum, where high-momentum falls, low-momentum rallys, or both,” Krinsky wrote to clients in a Sunday note. MTUM YTD mountain The ETF this year The fund tracks large- and mid-cap stocks that have shown relatively strong price momentum, according to iShares. Many megacap technology names including Meta , Nvidia , Amazon , Microsoft , Netflix and Alphabet comprise the biggest holdings, according to Morningstar data as of Monday morning. Notably, health care name Eli Lilly — which has gained traction as a potential replacement stock for Tesla in the Magnificent 7 — also made the list. Investors follow the 200-day moving average, which calculates the mean price over the last 200 sessions, to gauge a security’s long-term trend. Market wisdom says that trading above the 200-day average indicates conviction and buying interest from investors. Yet Krinsky said the fund’s performance may turn in the near future, pointing to the consumer price index data due Tuesday as a potential catalyst. Traders closely monitor CPI, which tracks price changes in a broad basket, for insight into the path of inflation and monetary policy. “While a momentum unwind is generally a factor or style occurrence, it should also benefit small-caps broadly which have clearly lagged,” he said. “We would also reiterate our thoughts … regarding the often overlooked mid-caps, which are very close to breaking out and testing their all-time highs from 2021.” Economists surveyed by Dow Jones are expecting CPI to rise 0.2% from December to January and 2.9% on an annualized basis. Excluding volatile food and energy prices, the so-called core basket is slated to add 0.3% month over month and 3.7% year over year. The ETF has outperformed the broader market so in 2024, climbing more than 13% compared with over 5% from the S & P 500 . That comes after the fund lagged the market last year, finishing just 7.5% higher while the S & P 500 surged more than 24%.
This is the hottest trade going in the market right now, but it’s reaching a breaking point, BTIG says
Feb 12, 2024
