The stock market suddenly has the look of a wounded prize fighter. And the bond market is bordering on being dysfunctional.  In a word, the market is disoriented. Disorientation leads to mistakes.

Don't be fooled. From an investment standpoint, this is one of those periods where those who stay vigilant and pay attention to developments will be in better shape than those who remain confused by circumstances.

As I noted last week: "The relationship between interest rates and stocks is about to be tested, perhaps in a big way. Observe the tightening of the volatility bands (Bollinger Bands) around the New York Stock Exchange Advance Decline line ($NYAD) and the major indexes. This type of technical development reliably predicts big moves. The real arbiter may be the US Treasury bond market. And the place where a lot of the action may take place once bonds decide what to do next may be the large-cap tech stocks. Think QQQ."

Yeah, buddy!

Bond Yields Trade Outside Normal Megatrend Boundaries

Big things are happening in the bond market, which could have lasting effects on stocks and the US economy.

I've been expecting a big move in bond yields, noting recently that yields on the 10-Year US Treasury Yield Index ($TNX) were "on the verge of breaking above long-term resistance," while adding that if such a move took place, it "would likely be meaningful for all markets; stocks, commodities, and currencies."

Well, it happened; after the FOMC meeting and Powell's post-mortem (uh, press conference), TNX blew out all expectations and broke above the 4.4% yield area in a big way, marking their highest point since 2007.  It was such a big move that it may be an intermediate-term top.  At one point in overnight trading on September 21, 2023, TNX hit the 4.5% level. But the current selling in bonds is way overdone, which means that at least a temporary drop in yields is on the cards.

Here's what I mean. The price chart above portrays the relationship between TNX and its 200-day moving average and its corresponding Bollinger Bands. As I noted in my recent video on Bollinger Bands, this is a crucial indicator for pointing out trends that have gone too far and are ripe for a reversal.

In this case, TNX blew out above the upper Bollinger Band, which is two standard deviations above the 200-day moving average. That move is the magnitude of a Category 5 hurricane on steroids and amphetamines. It's also unlikely to remain in place for long unless the market is completely broken.

The price chart suggests we may see a similar situation to what we saw in October 2022 when TNX made a similar move before delivering a nifty fall in yields, which also marked the bottom for stocks.

Meanwhile, as described below, the S&P 500 ($SPX) is reaching oversold levels not seen since the October 2022 and the March 2023 market bottoms.

Stay awake.

Oil Holds Up Better Than QQQ For Now

A great way to regroup after a tough trading period is to first look for areas of the market that are exhibiting relative strength. Currently, the oil sector fits the bill. Second, it pays to look for beaten-up sectors where recoveries are happening the fastest. At this point, it's still early for that part of the equation to develop, as too many traders are still shell-shocked.

Starting with a look at West Texas Intermediate Crude ($WTIC), prices are holding above $90 as the supply for diesel and fuel is well below the five-year average.  And yes, U.S. oil supplies continue to tighten while the weekly rig count falls.

The NYSE Oil Index ($XOI), home to the big oil companies such as Chevron Texaco (CVX), had a mild reaction to the heavy selling we saw in the rest of the market. XOI looks set to test its 50-day simple moving average in what looks to be a short-term pullback.

Chevron's shares barely budged earlier in the week despite an ongoing, albeit short-lived strike by natural gas workers at its Australian facilities. That's a strong showing of relative strength. You can see that short sellers are trying to knock the stock down (falling Accumulation/Distribution line), but buyers are not budging as the On Balance Volume (OBV) line is holding steady.

On the other hand, the very popular trading vehicle the Invesco QQQ Trust (QQQ) broke below the key support level offered by the $370 price point and its 20 and 50-day simple moving averages. This is an area that I highlighted here last week as being critical support. It now faces a test of the support area at $355. A break below that would likely take QQQ and the rest of the market lower.

An encouraging development is that the RSI for QQQ is nearing 30, which means it's oversold. Let's see what happens next. You can also see a similar pattern in the ADI/OBV indicators to what's evident in CVX above, which suggests that when the shorts get squeezed, it could be an impressive move up.

Join the smart money at Joe Duarte in the Money Options.com.  You can have a look at my latest recommendations FREE with a two-week trial subscription.

And for frequent updates on the technicals for the big stocks in QQQ, click here.

The Market's Breadth Breaks Down and Heads to Oversold Territory

The NYSE Advance Decline line ($NYAD) finally broke below its 20 and 50-day simple moving averages and is headed toward an oversold reading on the RSI, which is approaching the 30 area.

The Nasdaq 100 Index ($NDX) followed and is not testing the 14500–14750 support area. ADI is falling, but OBV is holding up, which means we will likely see a clash between short sellers and buyers at some point in the future.

The S&P 500 ($SPX) is in deeper trouble as it has broken below the key support at 4350 and its 20 and 50-day moving averages. On the other hand, SPX closed below its lower Bollinger Band on September 22, 2023, and is nearing an oversold level on RSI.  Still, the selling pressure was solid as ADI and OBV broke down.

VIX Remains Below 20  

The Cboe Volatility Index ($VIX) is still below the 20 area but is rising. A move above 20 would be very negative.

When VIX rises, stocks tend to fall as it signifies that traders are buying puts. Rising put volume is a sign that market makers are selling stock index futures in order to hedge their put sales to the public. A fall in VIX is bullish as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures, raising the odds of higher stock prices.

Liquidity is Tightening Some

Liquidity is tightening.  The Secured Overnight Financing Rate (SOFR) is an approximate sign of the market's liquidity. It remains near its recent high in response to the Fed's move and the rise in bond yields. A move below 5 would be bullish. A move above 5.5% would signal that monetary conditions are tightening beyond the Fed's intentions. That would be very bearish. 

To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

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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.

Joe Duarte

In The Money Options

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-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

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Bitcoin’s tight range trading points to a potential range expansion and that could trigger a trending move in LINK, MKR, ARB, and THETA.

Bitcoin (BTC) has been trading in a tight range for the past three days even as the S&P 500 fell for the last four days of the week. This is a positive sign as it shows that cryptocurrency traders are not panicking and rushing to the exit. 

Bitcoin’s supply seems to be gradually shifting to stronger hands. Analyst CryptoCon said citing Glassnode data that Bitcoin’s short-term holders (STHs), investors who have held their coins for 155 days or less, hold the least amount of Bitcoin supply in more than a decade.

In the short term, the uncertainty regarding Bitcoin’s next directional move may have kept traders at bay. That could be one of the reasons for the subdued price action in several large altcoins. But it is not all negative across the board. Several altcoins are showing signs of a recovery in the near term.

Could Bitcoin shake out its slumber and start a bullish move in the near term? Can that act as a catalyst for an altcoin rally? Let’s study the charts of the top-five cryptocurrencies that may lead the charge higher.

Bitcoin price analysis

The bulls have managed to sustain the price above the 20-day exponential moving average ($26,523) but they have failed to start a strong rebound. This indicates a lack of demand at higher levels.

The flattish 20-day EMA and the relative strength index (RSI) near the midpoint show a status of equilibrium between the buyers and sellers. A break below the 20-day EMA will tilt the advantage in favor of the bears. The BTC/USDT pair could then descend to the formidable support at $24,800.

Alternatively, if the price rises from the current level and climbs above the 50-day simple moving average ($26,948), it will signal that buyers are back in the driver's seat. The pair may then attempt a rally to the overhead resistance at $28,143.

BTC has been trading below the moving averages on the 4-hour chart but the bears have failed to start a downward move. This suggests that selling dries up at lower levels. The bulls will try to propel Bitcoin price above the moving averages. If they manage to do that, the pair could rally to $27,400 and subsequently to $28,143.

If bears want to seize control, they will have to sink and sustain BTC price below $26,200. That could first yank it down to $25,750 and then to the $24,800-support.

Chainlink price analysis

Chainlink (LINK) surged above the downtrend line on Sep. 22, indicating a potential trend change in the near term.

The moving averages have completed a bullish crossover and the RSI is in positive territory, indicating that the buyers have the upper hand. On any correction, the bulls are likely to buy the dips to the 20-day EMA ($6.55). A strong rebound off this level will suggest a change in sentiment from selling on rallies to buying on dips.

The bulls will then try to extend the up-move to $8 and eventually to $8.50. If bears want to prevent the up-move, they will have to sink and sustain the LINK/USDT pair below the 20-day EMA.

Both moving averages are sloping up on the 4-hour chart and the RSI is in the positive zone. The bulls have been buying the dips to the 20-EMA indicating a positive sentiment. If LINK price rebounds off the 20-EMA, $7.60 will then be the upside target to watch.

Contrary to this assumption, if Chainlink's price continues lower and skids below the 20-EMA, it will signal profit-booking by the bulls. LINK may then retest the breakout level from the downtrend line. The bears will have to sink it below $6.60 to be back in control.

Maker price analysis

Maker (MKR) turned down from the overhead resistance at $1,370 on Sep. 21, indicating that the bears are trying to defend the level.

The 20-day EMA ($1,226) is the support to watch for on the downside. If the price rebounds off this level, it will suggest that lower levels continue to attract buyers. The bulls will then make one more attempt to drive MK price above the overhead resistance. If they can pull it off, the MKR/USDT pair could accelerate toward $1,759.

Conversely, if the bears sink the price below the 20-day EMA, it will suggest that the bullish momentum has weakened. That could keep the pair range-bound between $980 and $1,370 for a few days.

The moving averages on the 4-hour chart have flattened out and the RSI is just below the midpoint, indicating a balance between supply and demand. If buyers shove the price above $1,306, MKR pric could sprint toward $1,370.

Instead, if the price turns down and breaks below $1,264, it will suggest that the selling pressure is increasing. That could clear the path for a further decline to $1,225. A slide below this support may tilt the short-term advantage in favor of the bears.

Arbitrum price analysis

Arbitrum (ARB) is in a downtrend. The bears are selling on rallies to the 20-day EMA ($0.85) but a positive sign is that the bulls have not ceded much ground. This suggests that the bulls are trying to hold on to their positions as they anticipate a move higher.

The RSI has risen above 40, indicating that the momentum is gradually turning positive. If buyers kick the price above the 20-day EMA, it will suggest the start of a sustained recovery. The ARB/USDT pair could first rally to the 50-day SMA ($0.95) and thereafter to $1.04.

The support on the downside is $0.80 and then $0.78. Sellers will have to drag ARB price below this zone to make room for a retest of the support near $0.74. A break below this level will indicate the resumption of the downtrend.

The 4-hour chart shows that the bears are selling the rallies to the downtrend line. The bears pulled the price below the moving averages but could not sink ARB pric below the immediate support at $0.81. This suggests that the bulls are trying to form a higher low.

Buyers will again try to propel the price above the downtrend line. If they succeed, Arbitrum price is likely to start a strong recovery toward the psychological level of $1. Contrarily, a break below $0.81 can tug ARB price to $0.78 and subsequently to $0.74.

Theta Network price analysis

Theta Network (THETA) soared above the 20-day EMA ($0.61) on Sep. 23, indicating that the bulls have absorbed the supply and are attempting a comeback.

The bears have pulled the price back below the 50-day SMA ($0.64) but the bulls are expected to defend the 20-day EMA. If THETA price turns up from the current level and climbs above the 50-day SMA, it will enhance the prospects of a retest of $0.70.

This is an important level to keep an eye on because if it is scaled, the THETA/USDT pair may reach $0.76. This positive view will invalidate in the near term if the price turns down and plunges below the 20-day EMA. That opens the door for a potential retest of $0.57.

The 4-hour chart shows that the bears are protecting the overhead resistance at $0.65. If buyers want to sustain the bullish momentum, they will have to drive THETA price above $0.65. If they do that, the pair is likely to start a new up-move toward $0.70.

The 20-day EMA is the important support to watch for on the downside. If bears sink the price below this support, it will indicate that the bulls are closing their positions. The pair may then descend toward the support at $0.58.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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