The paper examines the relationship between market states and momentum profits in stock returns. The authors test overreaction theories of short-run momentum and long-run reversal, finding that momentum profits are significantly higher following positive market returns (UP states) compared to negative market returns (DOWN states). Specifically, the mean monthly profit from a six-month momentum strategy is 0.93% after UP states and -0.37% after DOWN states. The long-run reversal, where momentum profits eventually correct, is also observed, with a significant negative return spread between winners and losers over holding periods from months 13 to 60. The study also finds that macroeconomic factors, as measured by Chordia and Shivakumar (2002), do not explain the asymmetry in momentum profits across UP and DOWN states. Instead, the lagged market return is a robust predictor of momentum profits, while the macroeconomic model fails to forecast these profits out-of-sample. The findings suggest that the state of the market, particularly the lagged market return, is crucial for understanding the profitability of momentum strategies.The paper examines the relationship between market states and momentum profits in stock returns. The authors test overreaction theories of short-run momentum and long-run reversal, finding that momentum profits are significantly higher following positive market returns (UP states) compared to negative market returns (DOWN states). Specifically, the mean monthly profit from a six-month momentum strategy is 0.93% after UP states and -0.37% after DOWN states. The long-run reversal, where momentum profits eventually correct, is also observed, with a significant negative return spread between winners and losers over holding periods from months 13 to 60. The study also finds that macroeconomic factors, as measured by Chordia and Shivakumar (2002), do not explain the asymmetry in momentum profits across UP and DOWN states. Instead, the lagged market return is a robust predictor of momentum profits, while the macroeconomic model fails to forecast these profits out-of-sample. The findings suggest that the state of the market, particularly the lagged market return, is crucial for understanding the profitability of momentum strategies.