momentum indicators: a powerful tool for managing businesses in volatile markets
TRANSCRIPT
Momentum IndicatorsA Powerful Tool for Managing Businesses in Volatile Markets
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What is a momentum indicator?A momentum indictor compares short term and long term rates of change and charts them visually.
3 What is a momentum indicator?
Markets inherently show rates of growth and decline that can be measured
over both short and long periods of time. Comparing these different
rates of change helps to reveal the underlying trend in a market, called
“momentum.” How fast is the market growing or shrinking? Short term
momentum is a leading indicator of longer term market trends.
Both rates of change, when calculated and displayed graphically, can
provide valuable insight on the direction and pace of market changes.
4 What is a momentum indicator?
The metals service center channel, measured by service center shipments
to end markets, contains market momentum.
MSCI has been tracking service center shipment levels month by month
for many years in the Metals Activity Report. Some of the most important
information in those reports is a momentum indicator chart comparing
short term and long term rates of change in monthly service center
shipment data.
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The short term rate of change (the blue line) is the latest three months data compared to the same three months one year before.
The long term rate of change is the latest 12 month trend compared to the preceding 12 month period (the red line).
How to read an MSCI MAR chart
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If the rate of change is positive—meaning there is growth in the market—the line will be above the “0” axis, if negative—indicating decline—it will be below the “0” axis. The short term indicator is more sensitive to changes in market momentum, so it typically leads the long term indicator when market momentum shifts.
How to read an MSCI MAR chart
Market momentum shifts into a downward trend.
Market momentum shifts into an upward trend.
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This indicator can be used to see if the market for a product is growing or shrinking
over the period charted, and by how much.
How to use an MSCI Metals Activity Report momentum indicator chart
9 How to use an MSCI MAR chart
June 20062006 was a record year for the metals industry as reflected in the MAR data. High expectations for continued growth were reflected in the monthly ARIMA forecast models (the blue shaded area).
10 How to use an MSCI MAR chart
January 20072007 shipments did not sustain 2006 levels. The MAR ARIMA forecast showed future deterioration suggesting a turn in the market might soon occur.
11 How to use an MSCI MAR chart
January 2008During 2007 and into early 2008, shipments continued to deteriorate. ARIMA models alerted the subscriber to the potential for action.
12 How to use an MSCI MAR chart
January 2009January 2009 – ARIMA models suggested a bottom might soon be established. During 2008 and 2009, executives attested to avoiding significant purchasing costs by using this MSCI data.
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Data collectionMSCI has been collecting monthly data on metals shipments and ending
inventories from a large sample of its service center members since the
late 1970’s.
MSCI reports shipments (in tons) from service centers’ owned inventory
(stock shipments) to customer end markets and month-end service center
inventories in its Metals Activity Report. This monthly data is used to
produce MSCI’s monthly Metals Activity Reports.
What is the MSCI MAR?
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Industry representationThe sample used for MSCI’s Metals Activity Reports are MSCI member
metals service centers. Many large, small and mid-sized service centers
that have operations through out the United States and Canada are in
the sample. Each service center stocks and ships a significant volume of
product in each of the categories of metal tracked in the reports.
The MSCI sample of participating service centers is very large and reflects
the industry’s diversity in terms of products, geographic location, and
company size.
What is the MSCI MAR?
Location ShapeSize Composition
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Industry benchmarksThe shipment and inventory data shown on the Metals Activity Reports
represents a best estimate of the size of the service center market in
each product category for steel, stainless steel and aluminum. The actual
data submitted by participants is collected monthly and then expanded
to produce estimates of the total industry, using expansion factors that
reflect industry shipment volume during a benchmark period.
MSCI’s MAR reports are benchmarked every five years using data from the U.S.
Commercial Census, Statistics Canada and other publicly available resources.
What is the MSCI MAR?
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ReportsMSCI produces a series of reports for member companies. Service centers
that contribute data to the Metals Activity report on a monthly basis
receive additional reports and data. This creates an incentive for member
service centers to enter and remain in the monthly sample. Other reports
are made available to non-participating service centers, mills and affiliate
members, either as free downloads or with more detail and analytical
charts via an annual subscription.
What is the MSCI MAR?
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ReportsOne of the most valuable reports MSCI provides is a series of analytical
charts that are produced in two versions; one for participating service
centers (shown here) and one for non-participating members as an annual
subscription. The momentum indicator featured in the previous slides is
one example of a chart that has proven to be very valuable for members.
What is the MSCI MAR?
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Validity of dataMSCI tracks the relationship between external economic variables and MAR service center shipment levels. These relationships (see the sample chart below) illustrate the validity of the MAR data and the importance of the metals distribution channel to the economy as a whole. The chart below shows how service center shipments is closely related to the U.S. Industrial Production Index over the course of many business cycles.
What is the MSCI MAR?
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How can you get these reports?MSCI members can subscribe to the MAR charts by visiting this page on MSCI’s website.
msci.org/research-data/metals-activity-report/members
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