Guide · Momentum
Does Market-State Momentum work?
Across 363 stocks, Market-State Momentum cut the worst fall on 80%, beat buying and holding on risk-adjusted return on 25% and on raw return on 23%. Mainly a seatbelt: it softened the big falls on most stocks, but usually gave up return to do it.
What it predicts
Momentum has paid after the market has risen and failed after it has fallen. Hold a stock with positive 12-1 momentum only while SPY is up over the last 3 years.
- In at month-end when the stock's return from 12 months ago to 1 month ago is above zero and SPY's return over the last 36 months is above zero.
- Out at month-end when either is zero or below.
Momentum plays bet that what has risen most over the past months tends to keep outperforming for a while. The family guide
How to use it
- It trades rarely (about 1.2 switches a year), so it suits someone who checks in occasionally, and a single bad call can last months.
- Expect to be wrong more often than right: only 42% of its calls worked. Its results come from the size of the winners, so following it means sitting through strings of small losses.
- It worked best on Energy & power (38% beat holding on risk-adjusted return) and worst on Consumer & retail (12%).
- Use it as one input. Your signal combines the plays you count with the other factors you weight into one call.
When it worked
Market-State Momentum did best against holding in the 2008 crash (+32% median gap) and worst in the 2020–21 rally (−15%). Median gap in return against holding the same stock (per year over stretches longer than 18 months; crypto excluded).
| 2008 crash | Recovery 2009–19 | COVID drop | 2020–21 rally | 2022 bear | Since Oct 2022 | |
|---|---|---|---|---|---|---|
| Market-State Momentum | +32% | −9% | 0% | −15% | +5% | −6% |
Where it worked
By kind of stock: how often it beat holding on risk-adjusted return, and the median Sharpe ratio gap.
| Group | Beat holding, risk-adjusted | Sharpe gap |
|---|---|---|
| Energy & power | 38% | -0.06 |
| Media & telecom | 30% | -0.06 |
| Software & devices | 29% | -0.05 |
| Indexes & ETFs | 29% | -0.07 |
| Industrials & materials | 27% | -0.10 |
| Real estate | 26% | -0.11 |
| Sectors | 25% | -0.05 |
| Financials | 23% | -0.07 |
| Industrials & rentals | 22% | -0.10 |
| Big tech | 17% | -0.15 |
| Healthcare | 17% | -0.13 |
| Metals & mining | 17% | -0.09 |
| Semiconductors | 16% | -0.08 |
| Consumer & retail | 12% | -0.11 |
Where it helped most
Sharpe ratio gap against holding, stocks with 3+ years of history
Right now
Market-State Momentum holds 252 of 377 names as of the Oct 13, 2026 close.
No changes of call in the last two weeks.
Backtest results since 2005 (or as long as each stock has traded), against holding the same stock over the same dates, after 0.05% per switch. Past results don't promise future ones. This analysis does not constitute trading advice. Please meet with an advisor or independently review sources before making any decision.