Let’s explore the momentum trade. The damage is real. The iShares MSCI USA Momentum Factor ETF (MTUM) closed Tuesday at $299.51, down 13.2% from its June 22 record close. But crowded positioning has been cleaned out, which is usually the precondition for a bounce, advises Lance Roberts, editor of the Bull Bear Report.
Over that same stretch, the S&P 500 Index (^SPX) dropped just 2.6% from its own Aug. 13 high. That gap is the story. Momentum isn’t dealing with a bear market. It’s dealing with a rotation.
Look at this chart. Measured against the index, momentum has given back 16.5% from its rolling one-year high. That’s the deepest relative drawdown since 2023, and only the fourth episode that severe in a decade.
Still, the 14-day RSI sits at 44.3, and even the July 29 flush only pushed it to 33.1. Momentum never got washed out; the trade just became boring. The 50-day average at $306.87 has rolled over, capping every rally attempt since mid-July.
So, what does this mean? Most likely, this is a potential setup, not a long-term trade. We’re leaving momentum exposure at target weights in portfolios and routing new money into quality and cash flow rather than chasing the bounce.
The trigger we’re watching is mechanical. A close back above $306.87 that holds for more than two sessions turns the 50-day from resistance into support. That’s where we add the position back toward an overweight.
