Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Bull Markets Are Creating a New Kind of Momentum Trap
Transcript
- Lucas: So the S&P 500 is at 7,533, the Dow is north of 52,900, and in the last five days Palantir is up nearly 15 percent. CrowdStrike up almost 8 percent. The momentum is real. Luna: Yeah, those numbers jump off the screen. But I think a lot of listeners are looking at that and wondering — should I pile in, or is this the exact wrong time? Lucas: Right, and that's exactly what I want to pick apart today. Because momentum in July 2026 looks different than it did in, say, 2021 or 2023. The speed of these moves is faster, partly because flows are more concentrated. Luna: Concentrated how? Are we talking about retail money piling into a few names, or is there something else going on? Lucas: Both, honestly. But I think the bigger driver right now is algorithmic herding. You've got systematic strategies — trend-following funds, volatility-targeting funds — that are piling into the same momentum factors simultaneously. Luna: So it's not just retail FOMO. It's machine-driven FOMO. Lucas: Exactly. And when those algorithms all trigger at once, you get these parabolic moves in a handful of names. Palantir up 14.8 percent in a week — that's not a normal draw. That's a crowding event. Luna: What's the danger for someone who sees that and thinks, 'I need to get in before I miss it'? Lucas: The danger is that the momentum can reverse just as fast. When these algorithms start to de-risk, they all sell at once. There's no gradual unwind — it's a waterfall. If you bought at the top of the momentum wave, you can get crushed in hours. Luna: So how do you tell durable momentum from a flash in the pan? What separates a CrowdStrike from something that's just hot because of algorithm flow? Lucas: I think the first filter is earnings visibility. CrowdStrike has recurring revenue, a clear product, a growing market. Palantir has government contracts and a commercial push. That doesn't guarantee they won't pull back, but there's a business underneath the momentum. Luna: Versus the pure speculation plays where there's no earnings and no product. Lucas: Right. But even with good businesses, the valuation can get stretched beyond what fundamentals justify. So the key is not to automatically buy because the stock is going up. You need to ask: is the price still reasonable given the earnings trajectory? Luna: What's a reasonable framework for a listener who wants to ride momentum but not get burned? Any specific rules? Lucas: A few that I like. First, set a maximum percentage of your portfolio for any single momentum position — maybe 3 to 5 percent. That limits the damage if it blows up. Luna: So you're not all-in on one name, even if it looks amazing. Lucas: Exactly. Second, use a trailing stop — not a hard stop that gets triggered by intraday noise, but something like a 15 percent trailing stop from the high. If the stock drops 15 percent from its peak, you're out. Luna: That forces you to lock in gains and prevents the 'it'll come back' mentality. Lucas: Third — and this is the hardest one — have a thesis for why the momentum exists. If you can't explain in one sentence why the stock is running, you probably shouldn't own it. Luna: Because if you don't understand the driver, you won't know when to sell. Lucas: Right. And the driver could be fundamental — like a product launch or earnings beat — or it could be purely technical, like a short squeeze or index inclusion. Both are valid, but you need to know which one you're riding. Luna: Let's talk about the broader market context. The S&P 500 is up, but the Russell 2000 is only up 0.4 percent in five days. That divergence matters, right? Lucas: Huge. The large-cap momentum is concentrated, and small caps are lagging. That tells you the rally isn't broad. It's being driven by a cohort of mega-cap and momentum names. If breadth doesn't improve, the rally is fragile. Luna: So the momentum in names like Palantir and CrowdStrike could be a sign of narrowing, not strength. Lucas: Exactly. And narrowing rallies tend to reverse more violently. So the very thing that looks like a bull market strength — these big weekly gains — could actually be a warning signal. Luna: I want to circle back to something you said about algorithmic herding. Is there any way for retail investors to see that in real time, or at least to be aware of it? Lucas: You can't see the exact algorithm flows, but you can watch volume spikes and the speed of price moves. If a stock goes up 10 percent in a day on average volume, that's different from a 10 percent move on five times average volume. The latter suggests institutional or algorithmic buying. Luna: So if you see massive volume, be more cautious. Lucas: Especially if the stock is already up a lot. The algorithms tend to accelerate moves, not start them. By the time you see the big volume, the easy money is probably already made. Luna: Yeah, that makes sense. I think the biggest risk for retail investors in this environment is not the bull market itself, but the temptation to treat every momentum spike as a signal to buy. Lucas: That's the momentum trap. The bull market creates these beautiful runs, and they look so convincing. But if you chase without a plan, you end up buying high and selling low. Luna: Quick honest thing — and this ties into what we're talking about. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many episodes possible. Lucas: Yeah, we don't run ads, we don't have sponsors. It's just listener supported. If these conversations have helped you think about your own portfolio or avoid a costly mistake, that's where the link is. Luna: And it's totally optional. But it's what keeps us going ad-free and focused on the actual numbers. Lucas: So back to the momentum question — I think the most practical takeaway for today is: don't let the bull market's velocity seduce you into abandoning process. The names that are running today might be the ones that correct hardest tomorrow. Luna: And the ones that correct might be great buying opportunities later. But not necessarily at the peak. Lucas: Right. So my advice is: enjoy the bull market, but respect the speed. Use position sizing, use trailing stops, and always know why you own what you own. Luna: I think that's a solid framework. It's not about being bearish — it's about being smart. Lucas: Exactly. And that's what we'll keep doing here — looking at the data, asking the hard questions, and trying to separate the signal from the noise.