Momentum Monday: Relief Rally Ahead of Big Data Week. Plus, Two New Momentum Picks and a Pre-Earnings Option Play

Let's see how things go with all the data that's due out this week.

Stocks are breathing a sigh of relief this morning, but everything could change in a heartbeat give all the big tech earnings due out this week combined with the equally big employment (ADP, JOLTS, NFP) and inflation data (PCE).  The bottom line is that we may be on the cusp of a liquidity crunch, which until proven otherwise is likely to be the prelude to another round of QE from global central banks.  

Here’s what’s of concern.  The U.S. Ten Year Note yield (TNX) doesn’t seem to want to reverse its recent uptrend. TNX has now moved above the 4.2% area and the 200-day moving and doesn’t show any signs of slowing down.  Of course, things could well reverse if this week’s data shows enough weakness to allow the Fed to cut rates without sparking a resurgence of inflation, which seems to be the bond market’s current operating principle.  TNX is closing in on 4.3%, which has been a successful turning point in the past, while its RSI for TNX is overbought at 70.  This suggests that any weakness would be enough to turn bond yields lower.  I’ll believe when I see it, although I recently recommended an options trade in my Extended Stay Portfolio (ESP) designed with a turn in bond yields in mind.

Meanwhile, the New York Stock Exchange Advance Decline line (NYAD) has worked off its recent overbought reading of 70 on the RSI and is testing its 20-day moving average this morning. Let’s see how this works out.

This morning, I am updating our Momentum portfolio with two new conditional trades designed to be triggered if the stocks move decisively above their BUY point along with an options play designed to capitalize on a potential pre-earnings rally on a large cap technology stock.