Analysis, Perspective, Trading Strategy
At the Edge of Chaos: The Fed is About to Tinker with QE and Stocks and Bonds Could get More of a Boost. Plus: IT Breakout Shows a House in Order is Better than Being a Household Name
Editor Joe
Duarte in the Money Options
As I’ve suggested over the last two weeks, the stock market was poised
for a breakout. And the odds for more gains in the short term are still
well above average. As a result, I am still not bearish, but as time
passes, it seems plausible that the market may change its general tone
over the next few weeks.
Of course, much depends on what the Fed does, especially if it alters the
way it buys bonds and delivers its QE. And there is emerging talk
that changes are coming . Certainly, the biggest positive influence for
stocks would be that the Fed increases the amount of money it puts into bonds,
which is still an unknown. Moreover, even if the Fed doesn’t change the amount
of QE but directs its purchases toward key areas in the yield curve, the
likely decline in interest rates which could result from these maneuvers
could have a positive effect on key market rates, especially mortgages, which
is why the homebuilder stocks are showing signs of life and the lumber stocks
continue their bullish advance as I describe below.
Meanwhile, after a torrid March, volume in the options market had fallen
off some, resulting in a slower trading pace for stocks early in the week,
until Friday when the volume in the SPY options picked up, especially on
the call buying side. This, in turn, tilted the expiration toward the bullish
side as the dealers were forced to hedge their bets and, in the process,
bought stock and stock index futures.
Subsequently, unless something very dramatic happens the Fed’s ongoing
QE is more likely than not to keep the uptrend in stocks intact. That said,
it seems that we may be nearing a point where some areas of the market will
see more selling while others may see positive money flows. Thus, the bottom
line remains that success will still be about selectivity.
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Option Bulls Returned to Market at Week’s End
The three weekly expirations (M,W,F) for the SPDR S & P 500 ETF (SPY)
last week were mixed, with Monday and Wednesday delivering lackluster volume
and generally sloppy directional conviction. But by Friday, the call buyers
were more or less back in business and the directionally bullish expiration
went off well for those of us long the market.
What this means is that for now, the market remains in the hands of the
bulls and that the odds of higher prices remain well above average. Next
week may be interesting as Friday’s monthly expiration would mark three weeks
of very bullish action in the markets, and could be an opportunity for the
market makers to take some money off the table.
Incidentally, check out my upcoming options presentation: “How to let Your
Stockcharts Lead you to Great Covered Calls,” on Stockcharts TV Options 101
program this week. You can catch me on Wednesday April 14 th at 12:30 Eastern
Time. More details here .
ASGN – Break Out Shows that a House in Order is Better than Being
a Household Name
Flash isn’t always what makes a stock worth owning. And in the case of
the shares of midsize IT and government contractor ASGN Inc. (ASGN) this
is the take home message for sure as the stock delivered a nice chart breakout
on 4/9/21. Certainly, ASGN is not a household name, but it does have its
house in order as its business recovers amidst expectations of increasing
revenues due to government contracts. The company offers cybersecurity, web
site design, artificial intelligence, and management and related services
to health care, government, and

According to the company’s most recent earnings call, EBITDA and free cash
flow for its most recent fiscal year were above analyst expectations but
not above management’s expectations. In fact, the company’s moves during
the COVID pandemic’s most troublesome period were more than adequate to continue
and to deliver year over year growth in two of its business segments. Moreover,
other areas of the business, especially due to acquisitions were able to
show sequential growth and were nearing breakeven point.
Moreover, the company now expects to grow its business due to the White
House’s push toward IT modernization in the government, especially in defense
and social services. And, with a $2 billion contract backlog in place, and
the addition of recent government contracts in place, the revenue stream
should remain in good shape for some time.
The options data for ASGN is directionally bullish, which is a nice confirmation
of its technicals where Accumulation Distribution (ADI) and On Balance Volume
(OBV) suggest the stock is under aggressive accumulation. A decisive move
above $102 could take the stock 5-10% higher in the next few weeks, barring
an all-out market meltdown.
I just recommended an interesting option trade based on MSNT. You can access
it and the rest of my model the portfolio with a FREE trial here .
I have positions in ASGN and MNST as of this writing.
SPECIAL
Subscription Offer
1. Over Twenty-Seven
Years of Trading Experience
2. Now Joe is
bringing all his years of expertise
to his new options focused web
site with two goals: Risk Management
and Profit Delivery.
3. Weekly
market analysis
and portfolio
updates gives
you the big
market picture.
4. Joe
has designed and
fully tested a select
group of easy to
follow and deploy
option strategies
coupled with on-
point stock and ETF
picks focusing primarily
in the biotech, healthcare,
and technology sectors.
5. In
depth
individual
position
technical
and
fundamental
analysis.
6. Unlimited
intraday
buy
and
sell
alerts
as
called
for
by
market
and
individual
positions.
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NYAD Makes New High along with SPX, NDX
The New York Stock Exchange Advance Decline line (NYAD) caught up to the
S & P 500 (SPX) and made a series of new highs last week confirming that
we are still in an uptrend for stocks. More encouraging is the fact that
RSI has not moved above 70 for NYAD yet, suggesting that stocks can still
climb further. Moreover, even if the 70 area is breached, the market can
stay in that overbought state for some time. In fact, what we’ve seen recently
is that readings above 70 are more likely to lead to consolidations not necessarily
full-blown corrections. Of course, there is no guarantee that this will repeat,
but it is worth noting.

Thus, as long as NYAD continues to make new highs,
remains above its 50- and 200-day moving averages and its corresponding
RSI reading remains above 50, the trend remains up. This combined set of
observations has been extremely reliable since 2016.

The Nasdaq 100 index (NDX), also caught up to SPX and along with NYAD has
made new highs confirming the uptrend in stocks.

The S & P 500 (SPX) is now firmly leading the market after making a
series of new highs, Support for SPX is now above 4000, with another band
of support near 3930 and 3970.
Good news! I’ve made my NYAD-Complexity, Chaos chart featured on my YD5
videos , and a few other favorites public. You can find them here .
Big Move Ahead Likely in Bonds
Stocks are still benefitting from what seems to be an intermediate term
consolidation in what is now a fairly clear pause in the quietest bear market
in U.S. Treasury bonds, probably in history. In addition, the trading range
now for the U.S. Ten Year note (TNX) remains between 1.4 and 18%. That said,
TNX continues to test the key 20 day moving average area which could lead to
a test of its 50-day moving average if the support at the 20 fails to hold.
A fall below the 50-day moving average support level would put yields in an
intermediate term downtrend.

However, the U.S. 30-Year T-Bond yield (TYX) has fallen less than
TNX, which suggests traders are still concerned about inflation but
given the potential for some difficulties in getting the infrastructure
package through Congress, at least without some changes that could
decrease its inflationary potential, TYX may consolidate in a narrower
range.

Still, the key remains what happens if and when TNX reaches 2% and
TYX reaches 3%, how the Fed responds, and then, of course – how stocks
respond. For its own part, TYX is trading below its 20-day moving average
with the Bollinger Bands shrinking and the bond ETF options delivering
a neutral message.

Finally, the price of lumber (LUMBER) continues to skyrocket, which
is pulling along the lumber stocks such as Louisiana Pacific (LPX)
and homebuilders such as KB Homes (KBH). Indeed, supply, demand and
pricing power remain on the side of those two sectors of the economy,
another example of how the markets, the economy, and people’s lives
are intertwined in the MEL system.
To learn more about bonds, lumber, and homebuilders and more check
out my recent Money Show presentation: The Trade of the Year. Check
it out here ,
and consider a Free Trial to my service. Click here .
I own shares of LPX and KBH as of this writing.
Joe Duarte is a former money manager, an active trader and a widely
recognized independent stock market analyst since 1987. He is author
of eight investment books, including the best sellingTrading
Options for Dummies, rated a TOP
Options Book for 2018 by Benzinga.com - now in its third edition, The
Everything Investing in your 20s and 30s and six other trading
books.
Meanwhile, the U.S. Ten Year note yield (TNX) is trading in a The
Everything Investing in your 20s & 30s at Amazon and The
Everything Investing in your 20s & 30s at Barnes and Noble.
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