Short Term Dopamine Hit

The current rally in momentum is likely a short-term 'dopamine hit' as historical data suggests factor unwinds last for several weeks. Because momentum is currently tied to the AI trade, its volatility threatens broader market returns.

Key Takeaways

• 1.Momentum unwinds historically last 6-7 weeks (34 business days) with the long leg declining approximately 21% on average.
• 2.Momentum factor exposures are extremely elevated, currently sitting at the 95th percentile according to MS Prime Brokerage.
• 3.The momentum trade is now fundamentally synonymous with the AI trade and, by extension, the broader market index performance.

Table of Contents

• A short-term dopamine hit
• Positioning
• More unwind potential
• Digestion needed
• 2022 playbook
• No longer just a niche factor
• Not a good sign for the overall market
• Two best friends
• "Stretched and reversing"

Document Preview

Page 1 of 3

Subscribe for full accessStart Free Trial