Big Tech Momentum With a Market Filter

A tech stock momentum strategy buys the technology stocks and funds that have been rising the most and keeps holding them while they stay ahead. A market filter adds a second, separate question: is the overall market healthy enough to own tech at all? When the filter says no, the strategy moves toward safer assets, which aims to reduce the sharp losses momentum strategies suffer in bear markets.

This post explains both halves, shows how they fit together in our Big Tech Trend strategy, and is open about the biggest weakness in testing this kind of strategy: the stock list.

What momentum means in investing

Momentum is the tendency of assets that have risen strongly over recent months to keep doing relatively well for a while, and of laggards to keep lagging. It has been studied for decades across many countries and asset types, and it is one of the most widely documented patterns in finance. It is far from reliable in any single month, but over long stretches it has shown up again and again.

There are two common versions:

• Relative momentum ranks a group of assets against each other and holds the strongest. For example, out of ten tech stocks, hold the three with the best returns over the past six months.
• Absolute momentum looks at one asset against its own past, or against cash. For example, only hold the Nasdaq 100 if it has risen over the past year.

A tech momentum strategy with a market filter combines both. Relative momentum picks which tech names to own. Absolute momentum, applied to the broad market, decides whether to own any of them.

Why apply momentum to big tech

Large technology companies have some features that suit momentum. Their earnings trends can last for years, investor attention tends to follow winners, and the biggest names are liquid enough to trade easily. In the period after 2010, a small group of US tech companies drove a large share of total stock-market gains.

That same feature is also the main danger. A strategy that keeps owning the strongest tech names ends up concentrated in a few companies in one sector. If those companies stumble together, there is little else in the portfolio to soften the fall.

Momentum crashes and why a filter helps

Momentum has a well-known weak spot. After a long bear market, the stocks that fell hardest often rebound the fastest when the market turns. A relative momentum strategy is holding the stocks that fell least, which are usually not the ones that bounce most, so it can lag sharply at the turn. And at the start of a bear market, momentum leaders can fall hard as crowded positions unwind.

A market filter tries to sidestep the worst of this. Instead of always holding the strongest tech stocks, the strategy first checks a measure of overall market health, such as whether a broad index is above its long-term average or whether its recent return is positive. If the market fails the check, the strategy reduces or removes its tech exposure and moves to defensive holdings.

The filter will not catch every fall. It looks backward, so it reacts after a decline has begun. A crash that happens within a few weeks can be over before a monthly filter even gets to vote. What it aims to do is avoid sitting fully invested through long, grinding declines.

How Big Tech Trend puts it together

Our Big Tech Trend strategy checks the market on the first trading day of each month. It trades a list that includes NVDA, TSM, QQQ, SMH, BIL and GLD, among others.

• Healthy market: it holds the strongest technology stocks and funds from its list.
• Weak market: it moves toward short-term bonds (such as the Treasury bill fund BIL), gold (GLD) and defensive sectors.

Because it only decides once a month, it trades far less than daily strategies, which keeps costs down but means it can be slow to react. Our post on rebalancing frequency covers that trade-off in more depth.

The backtest, with the benchmark next to it

The following numbers come from a historical backtest, a computer test on past prices. Nobody earned them, and future results will differ.

Read this with its caveat front and centre: the stock list was chosen with hindsight, and three stocks made 81% of the profit. In plain terms, the test owned companies we already knew had become giants, and a large majority of its gains came from just three of them. A person in 2011 would not have known to build this list. Future lists, chosen today, will include some names that disappoint.

Crisis periods

In these backtest periods the market filter did roughly what it was built to do. It fell less than the S&P 500 in each crisis and got back to its prior high sooner. The hindsight problem applies here too, though: a list built from today's winners will naturally look better in past crises than a list that would have been chosen at the time.

The current drawdown

The strategy's deepest fall in the tested period is also its most recent one. It fell 29% from June 22, 2026 to October 30, 2026, and as of the latest data it has not yet recovered. We show this because it is exactly the kind of fact that tends to be left out of marketing pages. A strategy with a long, impressive backtest can still spend months below its high, and nobody can say how long this recovery will take. Our guide to max drawdown explains how to read numbers like these.

Concentration: the risk behind the returns

The fact that three stocks produced 81% of the profit deserves its own section. Concentration helps a momentum strategy when its leaders keep leading. It hurts when one of them has a bad quarter, a regulatory problem, a product setback or a supply shock.

A few practical consequences follow:

• Single-company risk. A large weight in one company means its bad news becomes your bad news, regardless of how the market does.
• Sector risk. Tech stocks often fall together when interest rates jump or when growth expectations reset.
• Crowding. Popular momentum names are held by many investors using similar rules, so exits can be sudden.
• Filter blind spots. The market filter watches the broad market, not individual companies. A sharp fall in one big holding can happen while the market looks healthy.

Some people reduce this by pairing a concentrated strategy with others that hold different things. As an example from the backtest, a 50/50 mix of Big Tech Trend and our Gold Breakout strategy, rebalanced monthly from January 2011, returned +23.2% a year with a worst fall of 28%, against +37.3% and 29% for Big Tech Trend alone. That is a historical backtest nobody earned, Gold Breakout's caveat is that doubling trading costs cuts its yearly result roughly in half, and the mix is an illustration, not advice. Notice that in this case the worst fall barely changed, a reminder that combining strategies does not always cushion the worst moment.

How to judge a tech momentum strategy

When you look at any strategy of this type, a few questions get to the truth quickly:

1. How was the stock list chosen, and when? A list chosen after the fact flatters the test.
2. How much of the profit came from the top few names? If the answer is most of it, imagine the result without them.
3. What does the market filter look at, and how often? Monthly checks are cheaper but slower.
4. Where does the money go in a weak market? Bills, gold and defensive sectors behave differently.
5. Is it in a drawdown now? Current conditions matter more to a new user than a great average.

Key takeaways

• A tech stock momentum strategy holds the strongest recent tech names; a market filter decides whether to hold tech at all.
• Momentum is a well-documented pattern, but it can suffer sharp reversals at market turning points.
• Big Tech Trend's historical backtest returned +37.3% a year with a 29% worst fall, against +18.3% and 35% for QQQ, but the stock list was chosen with hindsight and three stocks made 81% of the profit.
• Its deepest fall, 29%, began in June 2026 and had not yet recovered as of November 2026.
• Concentration in a few companies is the main risk behind the returns, and a broad market filter cannot see it.

This is general education, not personal advice.

Watch the filter work on paper

You can follow Big Tech Trend's monthly decisions, along with the other four strategies, on a $10,000 paper account during a free 90-day trial with no card required. Sign up for the paper trial and see what the filter does on the next first trading day of the month.