The force that has propelled the stock market rally is about to exhaust itself this week. That force is related to a short-squeeze.
Let’s explore with the help of a chart. Please click here for an annotated chart of Dow Jones Industrial Average ETF DIA, which tracks the Dow Jones Industrial Average DJIA.
Note the following:
• The chart shows that 65% of the rally is related to a short-squeeze. As of last Thursday, the S&P 500 was more than 20% higher than its mid-March low, a stunning development.
• The chart shows that many stocks and ETFs fell into the Arora buy zones when the stock market fell.
• A short-squeeze occurs when short-sellers feel compelled or are forced to buy to cover short positions.
• A short-squeeze occurs in waves. The current rally has consisted of many waves of short-squeezes.
• It is important to focus on the word “related” (as in, “related to a short-squeeze.”)
• A short-squeeze often leads to a cycle of other actions.
• As the stock market rises on a short-squeeze, the momo (momentum) crowd jumps in to buy because of the momentum to the upside. This adds to the buying.
• As the momo crowd’s buying continues, buy signals are given on many technical indicators. Then technically oriented traders jump in to buy the stock market.
• On a continued market rise, FOMO (fear of missing out) takes hold, and many investors jump in to buy without fully understanding what is really happening.
• At about this time, some mom-and-pop investors start jumping in the stock market thinking that it is all clear.
• As the market rises, short-sellers put in new “shorts” and the cycle continues.
• The most important thing about short-squeezes is that they ultimately exhaust themselves. This eliminates the artificial buying that propelled a rally in the stock market.
• Investors have said there was no warning of the coronavirus. That’s untrue. On Jan. 22, The Arora Report’s call, as shown on the chart, was that the coronavirus could cause a drop in the market. After finding that investors continued to buy stocks, I wrote on Jan. 30 that arrogance and greed among momentum investors “may prove to be dangerous for investors.” Other than a potential cure, the course of the stock market rally will depend on the behavior of “naked” investors… Read more at MarketWatch.
A knowledgeable investor would have turned $100,000 into over $1,000,000 with the help from The Arora Report. NOW YOU TOO CAN ALSO SPECTACULARLY SUCCEED AT MEETING YOUR GOALS WITH THE HELP OF THE ARORA REPORT. You are receiving less than 2% of the content from our paid services. …TO RECEIVE REMAINING 98% INCLUDING MANY ATTRACTIVE INVESTMENT OPPORTUNITIES, TAKE A FREE TRIAL TO PAID SERVICES.
Please click here to take advantage of a FREE 30 day trial.
Check out our enviable performance in both bull and bear markets.
