Fundamentals
What is a momentum stock?
Five traits, and why four of them are the ones people skip.
Most definitions of a momentum stock stop at "a stock that is going up." That is not usable, because it describes half the market in an uptrend and gives no way to rank two candidates against each other.
A better working definition: a momentum stock is a liquid stock that is outperforming the market, outperforming its peers, trending above key moving averages, attracting above-normal volume, and staying near recent highs without becoming too extended.
Trait 1 — Relative strength
The stock is beating SPY or QQQ over 3 and 6 months, and its industry group is strong too. A stock up 8% while the index is up 10% is a laggard, however green the chart looks.
Trait 2 — Trend quality
Price above the 50-day and the 200-day, the 50-day above the 200-day, within 15–20% of the 52-week high, with a structure of higher highs and higher lows. A bounce inside a downtrend fails this test on purpose.
Trait 3 — Volume confirmation
Relative volume above 1.5, breakouts occurring on above-average volume, up days heavier than down days. Price without volume tends to give the move back.
Trait 4 — Catalyst
Earnings growth, revenue growth, a guidance raise, a product event, or a sector tailwind. This is what separates a repricing from a spike.
Trait 5 — Risk and entry quality
The one people skip. A stock can pass all four other tests and still be a terrible entry because it is 30% above its 20-day average with no support underneath.
Momentum vs hype
Hype has price movement and nothing else — thin volume, no earnings support, no sector participation, no defined risk level. Momentum has confirmation on all four. The momentum score exists to force that distinction before a name reaches a watchlist.
Does momentum actually work?
The effect is documented. Jegadeesh and Titman's 1993 study in The Journal of Finance found past winners outperformed past losers over 3-to-12-month horizons, and index providers such as MSCI still construct momentum indexes on price momentum with liquidity controls. That is evidence for the factor across a large basket over long periods. It is not evidence that any individual momentum trade will work, and crowded momentum unwinds sharply. Both things are true at once.