Rally Gathers Steam. Preliminary ALL-CLEAR Signal Delivered. Update on Open Option Trade. Plus a New Trade.

Barring a major negative reversal, the worst may be over.

It’s never over until it’s over. Yet, the clouds seem to be clearing above the stock market. And although there is always the potential for further trouble, the short term trend is showing some improvement.

Image courtesy of wallpapersafari.com.

The New York Stock Exchange Advance Decline line (NYAD) is above its 50-day moving average. This is a preliminary ALL-CLEAR signal that the trend has returned to the upside. The full ALL CLEAR will be delivered when NYAD puts further distance between itself and the 50-day line. But this is very encouraging. We’ve been expecting this type of activity for the past several weeks as each new low in NYAD has not been confirmed by the RSI creating a positive breadth divergence, such as we saw in November 2023.

The U.S. Ten Year Note yield (TNX) has reversed, as we’ve been expecting as its RSI was near 70 with each successive move higher recently. Better than expected PPI and CPI numbers provided the catalyst for the reversal. Now we need to see a quiet bond market for a few days, which will hopefully be followed by a further decline in yields. The 20-day moving average is important short term resistance. As long as TNX remains near this important line but does not climb back toward 4.75-5%, stocks should remain in their current constructive trading pattern.

Bitcoin (BTC/USD) is back above $100,000, even as bond yields are tame, reversing the recent relationship where rising bond yields fueled higher BTC prices. A move above $106,000 could lead to an explosive move in BTC. We are long BTC in our ESP portfolio.

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