Momentum Monday: Markets Wait for a Sign. Stay Patient. Build the Shopping List.

Give this market some room. Wait for the all-clear sign.

Like a fretful man waiting for an important phone call and the all clear sign, nervous investors continue to worry about the current global situation and its potential effects on the markets. Inflation and the geopolitical environment as the European and Chinese economies are showing weakness while the U.S. economy is holding up.

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Doubt and fear levels have spiked after last week’s stronger than expected payrolls number. This week’s CPI will likely trigger the next directional moves, especially in the U.S. Treasury bond market, which is calling the shots in the stock market.

This is a difficult time for sure. But all we can do is to prepare for whatever the next developments deliver. Here are some useful guidelines:

• 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.

For actionable pointers on contrarian investment, check out this weekend’s post on how to assess truly washed out sectors and how and when to build positions in them.

Thus, I continue to hold large portions of cash while managing current positions as we wait for the all clear signal.

Waiting for a Sign.

Stocks got off to another rough start this morning as the washout phase of the decline accelerated in some areas of the market while others are showing resilience. There is a subtle dynamic which has a positive tinge to it as the decline in the market’s breadth as in the New York Stock Exchange Advance Decline line (NYAD) is less aggressive than what we’re seeing in the S&P 500 (SPX), where the selling had a harder edge.

As we wait for the all-clear sign (a meaningful intraday reversal that holds) keep in mind that the end to this difficult period is difficult to predict, although it bears all the hallmarks of a panic bottom:

• The CNN Greed/Fear Index is at 25 this morning. This is bullish but it is not an optimal timing tool.

• The Put/Call ratio inched up to 0.97 in its latest reading. The last two market bottoms came with P/C ratios of 1.25 (8/24) and 1.30 (11/24). This suggests that stocks still have room to fall, but a bottom may be close.

• The S&P 500 (SPX) and the Nasdaq 100 (NDX) indexes are breaking to new lows. This is par for the course as the panic builds.

• The New York Stock Exchange Advance Decline line (NYAD, see below for full details) made a new low this morning, which was not confirmed by a new low on the RSI indicator. This is a bullish divergence unless it fails to hold.

The New York Stock Exchange Advance Decline line (NYAD) is holding up fairly well, with a marginal new low this morning. A positive close on NYAD would be encouraging. Let’s see how the day goes.

The U.S. Ten Year Note yield (TNX) is tagging the upper end recent trading range and is now trading above the 4.7-4.75% yield area. TNX is overextended here as the RSI is above 70. That’s no guarantee that lower rates are coming, especially if this week’s CPI delivers a negative surprise.

Bitcoin (BTCUSD) remains volatile, with a break below $90,000 this morning. The $100,000 area is still the benchmark for what’s next.

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