ESP Tuesday: Was that the Panic Bottom? Plus Two New Option Trades.

Fingers crossed. Let's see if the bottom holds.

Stocks seem to be trying to climb out of a hole.

Image courtesy of https://media.istockphoto.com/

Was that the panic bottom yesterday? Only time will tell. But yesterday’s trading certainly had that feeling of desperation which characterizes a “get me out at any price” feeling.

So, we wait patiently and make plans. Meanwhile, the uncertainty of the moment has certainly created a very negative sentiment environment which often reflects a panic bottom and a buying opportunity as we saw in November 2023.

You can see it in the persistently low readings of the CNN Greed/Fear Index which has fallen to the low 20s several times over the last couple of weeks. Yesterday, it fell to 21 as stocks sold off at the open. This morning, it’s hovering just below 30. The longer this indicator remains near these levels, the more likely it will be that we’ve seen the worst of the selling – barring something extraordinary developing.

Certainly, high levels of pessimism are bullish, but they are not reliable timing tools. For more precise trading activity, we look to the action in the major indices and the market’s breadth, as I describe below.

For now, our Momentum Portfolio (tailored for short term trades) is nearly 100% in cash, while our ESP portfolio (designed for intermediate term trades of weeks to months duration) continues to function as its design calls for, holding stocks with histories of rising during up trends and showing relative strength during down trends. Two perfect examples of our recent results are listed below. Together, they delivered $2380 in profits.

• SOLD Cameco Corp. (CCJ). Bought 9/20/24: $44. SOLD 12/30/24: $52. Return for this trade: $800/100 shares (15.38%).

• SOLD the iShares Bitcoin Trust Beneficial Interest ETF (IBIT). Bought 10/29/24: $39.20. SOLD 12/19/24: $55. Return for this trade: $1580/100 shares (40.3%).

Rest assured; I’ve got a shopping list ready to go for both portfolios. This morning, I am adding a new very contrarian, very low risk option trade with unlimited upside potential.

Market Update

The major indexes are bouncing back this morning after hitting the oversold levels I’ve been discussing for the past few days. The New York Stock Exchange Advance Decline line (NYAD) is showing some encouraging signs. Yesterday (12/30), the NYAD made a new intraday low while the RSI did not. This is the hallmark of a panic bottom. Let’s see if it holds.

The U.S. Ten Year Note yield (TNX) is still trading above the critical 4.5% yield area, but is retracing its recent climb. Stocks will remain vulnerable if TNX resumes its climb. A move above 4.75% area would be very negative. But TNX is overbought with the RSI recently hitting 70. Thus a move to 4.4% is possible.

Bitcoin (BTC/USD) is trying to hold near the 50-day moving average. $90,000 is critical short term support.

The ESP portfolio continues to hold up. This morning, I am adding a new option trade in a sector which is so oversold that it may have only one way to go – up!

Thanks to everyone for your ongoing support. I really appreciate it. Wishing Everyone a Great Christmas and a Happy New Year!

Thanks also to all the current Buy Me a Coffee members and supporters. Special shout out to new members who now have access to the Sector Selector ETF Service, included, at no extra charge with your Buy Me a Coffee membership.

For active trading, short term trading strategies, check out the Smart Money Passport.

If you’re a weekend investor, I’ve got just the thing for you. Check out my steady pace long term focused Weekender Portfolio.

If you’re thinking about day trading, my new book – Day Trading 101

– will get you started along the right path.

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