The Cat and Mouse Games Continues. Sitting on the Sidelines is Getting Expensive.

Plus, a new Momentum Monday Pick and an Update on a Potential ESP Surprise.

It may feel as if the market doesn’t know what to do these days. But there’s method to the madness. Take the New York Stock Exchange Advance Decline line’s daily flirtations with a new high as an example. Every day we get a nice move, yet it never quite gets above that line. Moreover, every failure uses up momentum and raises the odds of an exhaustion event which leads to a pullback.

That said, if this morning’s new high holds and NYAD builds upon it, those who’ve missed the rally will likely move in and extend the rally for a few more days.

If there’s a take home message building, it’s that the longer stocks hold up, the more expensive it becomes for bearish traders to stay on the sidelines, which means that, unless something changes drastically, the next wave of buying is likely to come from those who’ve missed the rally.

Image courtesy of roboacademy.com

It’s just that kind of market where the lack of an “all clear” signal keeps traders on pins and needles and makes for nervous action. Nevertheless, there are individual stocks which continue to act well enough to take a chance on, which is where I’m concentrating my efforts.

Market Update

This morning’s CPI came in softer than expected. But the markets are now saying it’s old data and that next month’s numbers might be worse than expected as the tariff effect will finally be felt. Of course, it’s hard to tell whether the recent pause in the tariff war will be reflected in that number or not. If we traded solely on data expectations, we would likely be either confused or broke.

The New York Stock Exchange Advance Decline line (NYAD) is back at it again, delivering an intraday new high. If it holds by the close and builds on it, it may trigger reluctant traders off the sidelines.

The S&P 500 (SPX) finally took out the 5700 resistance level and looks set to tackle 6000.

The U.S. Ten Year Note yield (TNX) is hovering just below 4.5% as the recession trade in the bond market fades.

Meanwhile Bitcoin is still stuck in the mud after rallying ahead of the events which have spurred stocks higher.

Finally, the U.S. Dollar (USD) is taking a wait and see attitude after yesterday’s big rally.

Bottom line:

The stock market seems to be in the final stages of capitulation as traders who have missed the rally may be forced to move in. If that happens, it should extend the rally in the short term.

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