Momentum Picks Up as NYAD Makes Another New High.

Keep an eye on Powell at Jackson Hole

The bulls came roaring back on 8/15/24, delivering a new high on the New York Stock Exchange Advance Decline line, easily the most reliable market indicator since 2016.  This morning, the rally continues with the venerable indicator making a new high.

One thing to watch, however, is that NYAD is approaching an overbought level of 70. It has reached this level rapidly, which indicates panic buying.  This type of action, certainly at this pace, is not likely sustainable for more than a few more days.  That means that the market is closing in on a consolidation. And with Fed Chairman Powell speaking in Jackson Hole Wyoming later this week, we could see at least a slowing of the rally before week’s end. On the other hand, if he is seen as being dovish, we may see an even faster rise before the consolidation.

Thus, keeping an eye on the U.S. Ten Year Note yield (TNX) is worthwhile.  This morning, it’s holding steady as traders handicap whether the Fed will cut rates in September or wait.  Much depends on what Fed Chairman Powell says in Jackson Hole this week.

As a result, this week’s trade is a low risk, high potential reward options trade.  By using an option we can still participate in the market’s potential up side but also limit our risk in case the Fed spooks the markets.