Momentum Monday Update - A very Contrarian Play as We Hunker Down

Palantir trade closed with $625 profit.

Image Courtesy of hindu.com

Stocks opened in nearly panic mode this morning as Friday’s selloff gathered gathered steam amidst liquidity worries. And while things calmed down after the first hour of trading, these types of trading spectacles could last a good while. Moreover, if they go on long enough, they often end up with some sort of statement from the Federal Reserve about their willingness to improve liquidity in the markets.

Yet, given the current geopolitical situation and the recent inflation data, it’s hard to know whether the Fed will make such a statement anytime soon. Powell will speak on Friday after what could be a momentous employment report - or not. But the Fed should speak up as liquidity is falling rapidly and the longer it takes for the central bank to signal that it’s going to provide liquidity the worse things will get.

Early fear gauge readings this morning are bullish from a contrarian standpoint. But lately, this hasn’t been very meaningful.

The CBOE Put/Call ratio is at 0.98 while the Index P/C ratio ( a gauge of institutional fear) is at 1.03. Both readings are in the mildly bullish camp, but are not in true panic region, which means that there could still be more selling.

The CNN Greed/Fear Index is at 19, which is an Extreme Fear reading. This is bullish from a contrarian standpoint. Yet, it has been near this level many times during the selloff and the selling has not stopped.

Over the past few weeks, I’ve cut back on the number of positions in the Momentum Portfolio, while concentrating on certain stocks in the financial sector which have held up. This tactic has paid off nicely as the volatility in the portfolio has been low. Thus, our cash reserves have risen. Now we wait until we get the all clear before moving back in.

This morning, I have a new very contrarian recommendation which offers the opportunity to capture a potential reversal in a market that is very hot but well overextended currently.

On a brighter note we were stopped out of Palantir last week with a $625 profit. Details below:

• SOLD - Palantir (PLTR). Bought 3/17/25: $85.75. SOLD 3/27/25: $91. Return for this trade: $625/100 shares (6.87%).

Market Update

The New York Stock Exchange Advance Decline line is testing its 200-day moving average. This morning it’s back above the line after last week’s rebuke. If NYAD can hold above its 50-day line, we may be off to the races soon.

Meanwhile, the U.S. Ten Year Note yield (TNX) has quietly moved below its 200-day moving average with a potential move toward 4%. A move below 4% would most likely signal that traders are increasingly betting on a major economic slowing and that the Fed is being warned that their monetary policy is too tight.

The S&P 500 (SPX) tested the lower end of its recent trading range this morning, almost tagging the 5450 level below which there is little support until 5300.

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