Methodology — Pillar III of VII
The trend matters. The reason for the trend matters more.
We do not chase charts, and we do not pretend they don't exist. Momentum is evidence about what thousands of other investors are learning — useful evidence, provided you remember it is a witness, not a judge.
What we examine
First, trend quality, which is not the same thing as trend size. A stock grinding higher for months — orderly advances, shallow pullbacks, broadening participation — is telling you that conviction is building across many holders and many decisions. A stock that did the same percentage move in an afternoon is telling you something happened. Those two charts can print the same return and carry completely different information.
Second, confirmation. Is the move travelling with the fundamentals or without them? A rising price backed by delivered results, upgraded guidance and improving cash flow is the market slowly agreeing with an argument. A rising price backed by nothing but its own rise is a rumour with a chart. We check what changed in the business over the period of the move — and get properly interested when the answer is "nothing."
Third, relative context. Every move gets read against its sector and the index. A stock "outperforming" inside a falling sector may just be dying more slowly; a flat stock in a savaged sector may be showing genuine strength. Absolute price moves flatter and slander companies constantly — context is the correction.
Fourth, behaviour on bad days. How a stock trades when the market sells off tells you who owns it and how firmly. Strength that evaporates on the first red day was never strength.
Why it matters
Fighting a durable trend is expensive, and joining a hollow one is more expensive. Momentum, read properly, protects us from both — it tells us when the market is beginning to agree with our fundamental case, and it warns us when the market has stopped agreeing and we should re-check our work rather than our conviction.
What momentum never gets to be, at this desk, is a thesis. "It's going up" is an observation, not an argument — and observations do not survive contact with a bad half-year result. Momentum earns its place on the checklist as context around the fundamental case: it can strengthen a pick, delay one, or send us back to re-examine one. It cannot create one.
What would change our mind
Momentum signals are the fastest-moving inputs on the checklist, so this section matters more here than anywhere else.
- A durable trend breaking on heavy volume — many holders changing their minds at once is information, whatever caused it
- Price and fundamentals diverging: if the price keeps climbing while the delivered numbers deteriorate, we re-examine both sides rather than assuming either is right
- A spike with no accompanying news, result or filing — we treat it as noise until proven otherwise, however pleasant it looks on the record
- Participation narrowing: a rise carried by ever-fewer buyers is a trend running out of believers
And the honest reverse: when a stock we passed on keeps grinding higher with confirming fundamentals, that is the market marking our homework. We re-run the checklist rather than defending our earlier conclusion out of pride.
Figure III — Both of these were "up 40%" at some point. Only one was information.
The staircase is many investors reaching the same conclusion over months — conviction with structure under it. The spike is an event with a chart attached. We treat them very differently, and so should anyone whose money is involved. Illustrative diagram; not data from any listed company.
General information only — not personal financial advice. Research is provided to wholesale clients within the meaning of ss 708 and 761G of the Corporations Act.