Momentum Monday – One Stock and One Option to Weather the Storm.S

Watch the indexes but Focus on the New York Stock Exchange Advance Decline line.

The S&P 500 has broken below 6000 this morning, although there are signs, as I write, that the break may be temporary. I will be watching SPX carefully, but focusing on the market’s breadth. Indeed, the trading pattern I’ve been writing about for the past several weeks where the major indexes and large cap stocks get rocked, while the market’s breadth continues to hold up reasonably well continues to unfold.

Here’s a quick recap of why this trading pattern is important. The NYAD is a measure of the market’s breadth. It’s a useful filter of the noise which is inherent to the major indexes which can be distorted by big stocks, such as Amazon (AMZN) and Walmart (WMT), whose recent action I examined in detail this weekend.

Thus, NYAD is simpler to interpret, providing more actionable information. When it rises, more stocks are rising than falling. When it falls, the opposite is true. The bottom line, and why it’s most useful, is that a rising AD line means that the odds of picking winners is much higher. Moreover, when NYAD makes a new high, it suggests that a new rally is unfolding.

Today, we see NYAD remains in a consolidation pattern, holding above its 50-day moving average with an RSI reading near 50. This is about as neutral as it gets. What happens next in NYAD will be crucial to the market’s trend.

Part of what’s supporting the NYAD is the bullish action in the bond market, where the U.S. Ten Year Note yield (TNX) has broken below 4.5% this morning and could move lower if Friday’s PCE – the Personal Consumption Expenditures Index; the Fed’s favorite inflation gauge) comes in better than expected.

Meanwhile, keep an eye on the 6000 (5950-6150 trading range) level for SPX as there are two large VBP bars along with the 50-day moving average in that general price area. That means that lots of money is betting (up or down) on that price level and that whichever way the market breaks from here will be significant.

In this issue, I am adding two new trades. One is a healthcare stock which is nearing a breakout while the other is an option play on a stock which we recently sold for a big profit and which has recently pulled back to an optionable level.

Thanks to everyone for your ongoing support. I really appreciate it.

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. Two new trades were posted yesterday.

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

For large potential profits with longer term holding periods in stocks check out the Smart Money Passport 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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For a more detailed version of how I trade the markets, check out my recent visit with Jason Pertz (Against All Odds Podcast). Both Jason and I went to interesting places during our conversation – offering actionable suggestions which can help your trading – and we had a lot of fun. You can view the conversation live at: