The Daily Interview: Momentum on the Downside

Remember when momentum was every investor's friend, back in good old 1999? As the market shows of late, momentum can be the enemy, too.

Peter Da Puzzo President Cantor Fitzgerald

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Stanford University's Tom Campbell

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On the anniversary of the Nasdaq Composite Index's peak, just a year after the painful popping of that New Economy technology bubble, stocks are in a very different place. The Nasdaq has erased the gains of 1999 and early 2000, and many stocks have lost more than 75% of their value. What everybody wants to know is, is there any more downside left?

One answer to this question might be found by looking at how momentum -- the kind of speculative buoyancy that always accompanies bubbles -- works. Can momentum sink stocks to unreasonably low valuations in the same way it can whoosh them up to unreasonably high ones? If so, is that what's been happening, and will it continue? ...