The study examines the relationship between market states and momentum profits in stock returns. It finds that momentum profits are significantly higher following positive market returns (UP states) and lower following negative market returns (DOWN states). From 1929 to 1995, the mean monthly momentum profit after UP markets was 0.93%, while after DOWN markets it was -0.37%. These results are robust to macroeconomic factors and microstructure adjustments. The study also finds that long-run reversal occurs as markets correct mispricings, with significant negative returns following UP markets over the 13-60 month holding period. Long-run reversal is also observed following DOWN states, suggesting that market conditions play a critical role in momentum profitability. The study further finds that macroeconomic models fail to explain momentum profits robustly, while the lagged market return is a strong predictor of momentum profits. The findings support overreaction theories, where investors overreact to news, leading to short-run momentum and long-run reversal. The study concludes that market state is crucial for momentum profitability, and that the lagged market return provides more reliable information than macroeconomic variables for predicting momentum strategies.The study examines the relationship between market states and momentum profits in stock returns. It finds that momentum profits are significantly higher following positive market returns (UP states) and lower following negative market returns (DOWN states). From 1929 to 1995, the mean monthly momentum profit after UP markets was 0.93%, while after DOWN markets it was -0.37%. These results are robust to macroeconomic factors and microstructure adjustments. The study also finds that long-run reversal occurs as markets correct mispricings, with significant negative returns following UP markets over the 13-60 month holding period. Long-run reversal is also observed following DOWN states, suggesting that market conditions play a critical role in momentum profitability. The study further finds that macroeconomic models fail to explain momentum profits robustly, while the lagged market return is a strong predictor of momentum profits. The findings support overreaction theories, where investors overreact to news, leading to short-run momentum and long-run reversal. The study concludes that market state is crucial for momentum profitability, and that the lagged market return provides more reliable information than macroeconomic variables for predicting momentum strategies.