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Momentum stocks are out of favor this month, but one technical analyst sees a comeback

VIDEO4:0604:06
Momentum stocks could regain market leadership, Oppenheimer technician says

Momentum stocks are taking a breather this month.

The MTUM momentum ETF, which counts Microsoft, Disney and Starbucks, among its top holdings, has fallen in September as the S&P 500 has advanced 2% on its march back to record highs.

The momentum trade should come back into favor, says Ari Wald, head of technical analysis at Oppenheimer.

"Stocks that have outperformed over the prior 12 months are usually stocks that continue to outperform. No style of investing works all the time, but through various market cycles, momentum has been one of the better performing factors," Wald said Monday on CNBC's "Trading Nation."

He added that the momentum stocks that led the market at the beginning of the year should resume leadership.

The MTUM ETF is "really just pausing after its breakout through October 2018 resistance at around $119. I think this pause is allowing previously overbought conditions to recede ahead of what we expect to be a resumption of that longer-term breakout," Wald said.

Rather than focusing on momentum, Washington Crossing Advisors portfolio manager Chad Morganlander combs through the entire market for quality companies with very little debt in which to invest.

"When you look at the definition of momentum, high momentum, low momentum, to us it's just about quality. If you do that, going into Q4 where in this global backdrop where you have a deceleration of economic activity, the Federal Reserve as well as the ECB being quite accommodative and global PMIs that are decelerating rapidly, we think that you'd be in a good spot to do well," Morganlander said during the same interview.

The MTUM ETF has begun to outpace the S&P 500 in the past week — it has risen 1% to the S&P 500's slight decline.

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