ESP Tuesday: One Step Forward and Two Steps Back. Plus, a New Contrarian Stock Trade and Several Updates.

Big tech spills the coffee today. Big Test for stocks lies straight ahead.

Spilled coffee image courtesy of extracrispymedia.com

Like an unwelcome coffee cup debacle, the stock market rolled over this morning with the Nasdaq 100 (NDX) index leading the way as large cap tech stocks are under pressure. This is part of the bottoming process I’ve recently noted would likely unfold:

“Of the common scenarios which could unfold after a market crash - a V shaped bottom and a fast recovery, a steady sideways consolidation, or a bumpy frustrating and confusing trip full of fake outs and uncertainty – I am expecting a mix of the latter two. That’s because a grinding trade would wear out short sellers and short term traders while allowing trend traders to build positions for weeks, months, and in some cases years.”

In other words, the real test for the market is whether stocks make new lows. Moreover, it’s all about how that new low develops. If the market makes a new low, but the RSI does not, then the odds favor that the new low is a panic bottom. Panic bottoms are precursors to rallies. The rallies could be in the form of a V bottom or a more nuanced consolidation with an eventual uptrend developing.

On the other hand, it is always possible that new lows, despite indicators suggesting bullish tidings, could develop into protracted down trends. In the meantime:

• Stay patient;

• Stick with what’s working;

• Hold onto any position that is not stopped out. And most of all;

• Look for relative strength, building a shopping list and retooling portfolios for the next up trend.

In today’s ESP update, I have a new trade on a stock which is poised to move decidedly higher, along with updates on existing positions including one which is being bought aggressively on dips.

Market Update – Big Test Ahead

The New York Stock Exchange Advance Decline line (NYAD) is testing the resistance of its 20-day moving average. This should come as no surprise after several days of rallying. A failure here, however, would suggest that a retest of the recent market bottom may be approaching. As I stated above, the next trend will likely emerge after such a test if it unfolds.

The U.S. Ten Year Note yield (TNX) is approaching a critical level. In this chart I am using the 200-day moving average in conjunction with Bollinger Bands set up two standard deviations above and below the MA (green bands). This is a very long term view of the trading action.

When TNX rises above the upper band in this time frame, the eventual reversal is usually very meaningful. In other words, we may see TNX move above 4.8% in this move. Under normal circumstances, however, this would be a prelude to a bullish downside reversal as we saw in October 2023.

Bitcoin (BTC/USD) is tracing a similar pattern in conjunction with its 200-day MA/Bollinger Bands. $90,000 is critical short term support.

For its part, the Nasdaq 100 index (NDX) is in a short term down trend (lower highs, lower lows) with its 20 and 50-day moving averages acting as a big sandwich above and below current prices. OBV is rising (some buying) while ADI is falling (active short sellers). A move above 22,000 would signal another uptrend.

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