The stock market is detached from Main Street — that is what I hear from investors most often these days. Many are puzzled, while others are convinced that this is a sucker’s rally. There is merit to both bull and bear cases.
The bear case is well-understood, the bull case is not as apparent to many investors. Please see “Why it’s not so crazy that stocks are rising even though 26 million people are out of work.”
Investors need to dig below the surface of the stock market. When they do so, they will find that the big money is in the $5.1 trillion hideout of large-cap tech stocks, which will be tested this week.
Let’s explore with the help of two charts.
Please click here for an annotated chart of the Dow Jones Industrial Average ETF DIA which tracks the Dow Jones Industrial Average DJIA.
Please click here for an annotated chart of the S&P 500 ETF SPY which does the same for the S&P 500 Index SPX. It is compared with six securities.
Note the following:
• The first chart, which is monthly, should always be the starting point for any analysis under present stock market conditions because it is longer-term compared with a daily one.
• The first chart shows that the stock market has rallied to the bottom band of the resistance zone. Historically, the bottom band of the resistance zone is a key point to watch. The chart shows The Arora Report called on Jan. 22 the coming coronavirus drop in the stock market.
• The second chart shows the year-to-date performances of Apple AAPL, Amazon AMZN, Microsoft MSFT, Alphabet GOOG, GOOGL and Facebook FB. These companies together represent a market cap of $5.1 trillion.
• The second chart shows that four of those stocks fell into the Arora buy zones during the stock market dip, providing investors opportunities to buy them at attractive prices.
• The second chart compares the SPDR S&P 500 ETF Trust with the iShares Russell 1000 Value ETF IWD.
• The second chart shows that small-cap value stocks have underperformed S&P 500 by 9.1% year-to-date.
• Investors are hiding in the five stocks shown on the second chart.
• Apple, Amazon, Microsoft, Alphabet and Facebook are about to report earnings. Investors’ expectations are high. More important than the earnings will be what the companies say about the future. I will be carefully listening to the conference calls. It is important for investors to remember that CEOs are highly incentivized to keep their stock prices high….Read more at MarketWatch.
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