There are three key questions for stock investors now: How to avoid losses, where is the support, and is the market oversold? Let’s explore with the help of two charts.
Two charts
Please click here for the chart of money flows in 11 popular tech stocks. Tech stocks have been the market leaders. Therefore, it makes sense to pay the most attention to tech stocks. For the sake of transparency, this chart was first provided to the subscribers of The Arora Report on Sept. 25 when the market was flying high. Subsequently, it was published in MarketWatch. Please see “Fear of October is creeping into money flows in 11 popular tech stocks.”
Please click here for the annotated chart of S&P 500 ETF SPY. Similar conclusions can be drawn from the charts of the Dow Jones Industrial Average DJIA, Nasdaq 100 ETF QQQ and small-cap ETF IWM. Please note the following from the charts:
• The chart shows that The Arora Report added short-term hedges on Sept. 7. Now, those hedges have not only added protection but they are profitable. We are beginning to book profits on those hedges now.
• The chart shows the Arora call on “fear of October” based on smart money flows on Sept. 25.
• The chart shows the support zone. As of this writing, the market is right at the top band of the support zone. The most likely scenario is for the market to bounce from the support zone.
• RSI (relative strength index) shows that the market is oversold. This indicates that the market should bounce. Perhaps after a deeper excursion into the support zone.
Avoiding losses
Here are some things we did that you can do in the future.
• We held 21%-31% cash.
• We held medium-term hedges of 10%-15%.
• We held short-term hedges of 10%-15%.
• We underweighted high-beta stocks and ETFs. (High-beta stocks are more volatile than the broader market.) At this time, all of our long portfolios are drastically underweight in high-beta stocks and ETFs. Most investors are overweight high-beta.
The FAANG stocks Facebook FB, Amazon AMZN, – Apple AAPL, Netflix NFLX, and Google GOOG, GOOGL are high-beta stocks. Amazon and Netflix tend to have the highest beta among those stocks. Other popular tech stocks such as Square SQ, AMD AMD and Nvidia NVDA are also examples of high-beta stocks.
• We hold select short positions. Short positions provide gains when the market falls….Read more at MarketWatch.
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