SMU Data and Models
The Spread Between Our 12-Week Moving Average & MoMo Shrinking
Written by Brett Linton
February 15, 2017
The Steel Market Update (SMU) Steel Price Momentum Index (MoMo) for hot rolled steel in the United States remained positive for the 14th consecutive week, following a long 17 week negative streak. MoMo is a trailing indicator and shows the relationship between the current U.S. hot rolled coil price movements against the previous 12-week average price as a percentage. A positive MoMo index indicates hot rolled steel prices are moving in an upward direction compared to the previous 12 week period, while a negative index number indicates a downward direction in prices.
MoMo should not be confused with the SMU Price Momentum Indicator which is a forward looking indicator. The SMU Price Momentum Indicator is currently at Higher indicating that steel prices are expected to rise over the next 30 days.
MoMo was measured at +0.97 percent this week, meaning that the current HRC price is higher than the average price over the last 12 weeks. This is the lowest reading since November 8, 2016 when MoMo was -3.81 percent and momentum is failing as prices come under short term pressure.
The change in MoMo can be a useful indicator in depicting the severity of price movements and evaluating the directional trend for flat rolled steel prices. The week-over-week change in MoMo was -0.91 percent, following a change of -2.69 percent last week. This indicates that there continues to be a downward movement in hot rolled price momentum, but that movement is losing speed compared to one week ago.
To get a wider sense of the change in the MoMo Index and eliminate weekly fluctuations, we take an average of the MoMo changes over the past three weeks, a three week moving average (3WMA). The 3WMA change in the MoMo Index is -2.40 percent, following a change of -2.59 percent the week. This also shows that there is a downward movement in hot rolled price momentum. This is the seventh negative 3WMA movement in a row, and we had previously not seen a negative 3WMA since October 18, 2016.
The graph below demonstrates the relationship between the SMU hot rolled coil price, the SMU Price MoMo Index, and the three week moving average change in the MoMo Index. Click here to view and interact with it on our website. As published in our Tuesday evening newsletter and revised in our Thursday issue, the latest SMU HRC price range is $590-$630 per ton with an average price of $610, unchanged over the previous week.
Brett Linton
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