Reading the Tape: What the "Momentum Trade" Actually Tells You
“Don't dress up hope as certainty" -Clay Baker
The Portfolio Performance
The portfolio is UP +19.41% YTD
The S&P 500 is UP +12.38% YTD
There are no trades today
If you've been watching the market this month, you've likely noticed something odd: the boring stuff is being sold off, while the exciting stuff is going vertical. Let’s use three ETFs to get a broad view of the market shift. Healthcare and staples (think XLSI, IXJ) are trending lower. Momentum names (MTUM) just broke out to the upside. That's not random noise — it's a rotation, and rotations leave footprints if you know where to look.
Let's walk through what those footprints mean and, more importantly, why they're appearing right now.
Start With the Plumbing, Not the Paint
It seems I can’t stress this enough. The price chart is the paint job. It's what everyone stares at, and it's the last thing to change. The plumbing — volume, positioning, institutional flow — moves the house. Before we talk about MTUM ripping to +3.2%, let's look under the sink.
The volume profile shows where big money has already committed. Picture the last five trading sessions as a sideways histogram: at each price level, how much volume traded? You can use a free app like Yahoo Finance on your mobile device to set up a chart with a Volume Profile to see these bars. The time frame is set to 5 Days. The green and red candle line is MTUM, the gold line is the XSLI, and the blue line is the IXJ. The horizontal purple bars on the right in the price chart are volume levels.
The thickest bar — the Point of Control, or POC — sits around the -1.0% to -1.5% band. That's the "high volume node," the price zone where the most shares changed hands. Think of it as the building's foundation. On September 4th, that foundation was exactly where buyers stepped in.
Now look above the current price. Volume falls off a cliff above +1.5%. That means MTUM's push from +1.5% to +3.2% happened on thin air — very few shares have traded up there, so there's nobody sitting on old positions to sell into the rally, and nobody providing a floor if it reverses. It's the difference between climbing a ladder with rungs every foot versus every three feet. You get up faster, but a slip hurts more.
Confirming It's Real, Not a Fake-Out
Institutional money doesn't announce itself. It leaves clues. One of the better ones is the Williams Accumulation/Distribution line, which tracks whether big players are quietly buying (accumulating) or quietly selling (distributing) relative to price. Both the yearly and session-level A/D lines stair-stepped higher starting September 4th and never really looked back. Translation: this wasn't a short squeeze that ran out of gas. Real buyers were pressing bids into the close, session after session — the market equivalent of someone patiently buying every dip because they actually want the stock, not because they were trapped.
The Oscillators: A Trend That's Getting Tired, Not Broken
Here's where I want you to slow down because this is the part that retail investors usually misread.
Aroon: Aroon Up is at 92.86, with Aroon Down flatlined at 0, about as one-sided as this indicator gets. It just means recent highs keep being made — directional dominance, full stop.
RSI: At 69.86, we're knocking on the door of "overbought" territory (traditionally 70+). This does not mean "sell now." It means the easy money in this leg has likely been made, and the trade is getting stretched.
MACD: The histogram flattening around 1.00 indicates the rally's pace is cooling, even though the trend itself remains up.
Volume Oscillator: Turning negative after the September 4th surge is completely normal. Big ignition move on heavy volume, then a quieter drift higher as the last of the short sellers are squeezed out. Explosion, then exhaustion.
None of these say "the trade is over." They say "the trade is maturing," which is a very different statement — and one worth learning to distinguish, because conflating the two is how people sell winners far too early.
Why Now? The Macro Behind the Chart
Charts describe what happened. They rarely explain why. To understand why, you have to zoom out:
Recession fear is draining from the market. Firm payrolls and resilient services data have pushed recession odds lower, and as that fear fades, demand for "insurance" sectors like staples and healthcare declines. Umbrella sales decline when the forecast calls for sunshine.
Yields are punishing the bond-proxy trade. When short-term cash yields more than a staples stock's 2.5–3% dividend, the reason to hold that stock for income evaporates. Capital goes where it's paid to go.
Margins are diverging. Sticky input costs squeeze staples on the cost side, limiting how much they can raise prices before demand cracks. Semis and cloud infrastructure names, by contrast, retain their pricing power.
Systematic flows amplify all of it. Quant and multi-strategy portfolios don't care about your narrative — they trade on earnings revisions and price trends. When momentum names keep getting upgraded and defensives keep getting downgraded, the algorithms mechanically buy the former and short the latter. It's not conviction; it's code.
Institutional career risk. Coming back from the summer lull, portfolio managers who are behind the index can't afford to hold laggards into year-end, so they chase.
The Blackjack Lesson
Here's how I think about trades like this. When you're counting cards and the deck turns rich, you raise your bet — the odds are in your favor. But you never bet the whole stack, because a rich deck can still deal you a bad hand on any single card. This setup is the market's version of a "rich deck": accumulation is real, the trend is confirmed, and the catalysts make sense. But overhead volume is thin, and RSI is stretched. That's your reminder that even a good bet has a bust card in it.
The takeaway for your notebook: a momentum breakout backed by real accumulation and a supportive macro backdrop deserves respect, not blind faith. Know where the volume shelf is (that's your stop-loss logic if you use stops), know when the oscillators signal "stretched" versus "broken," and never mistake a strong trend for an invincible one. Volume at Price is your most powerful metric for determining where to start, add, and sell.
In all investment decisions, don’t dress up hope as certainty. Hopeium is a drug that has ruined many investors.
Stay Invested,
Clay Baker
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Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security.
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