GURUS KNOW THE ANSWER: SHOULD YOU BUY OR SELL THE RALLY?

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By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

Gurus Know The Answer

Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

  • Here is the key question: should you buy or sell the rally?
  • Over the weekend and this morning, gurus are out in full force claiming that they know the answer for sure.  This is great news for the sheep because the period of indecision is over and now the sheep know the answer. However, if you are a prudent investor and think for yourself, the answer is more complicated.
  • After having carefully studied proclamations from a large number of gurus, here is our take – gurus are talking their book.
    • Permabulls are saying that the bottom is in and investors should buy this rally.
    • Permabears are saying that this rally is a great opportunity to sell.
    • Very few gurus who are not permabears or permabulls are changing their tune.
      • If they were bullish before the market drop, they are saying buy the rally.
      • If they were bearish before the drop, they are saying sell the rally.
  • Here are the bullish arguments.
    • The chart shows a breakout above the support/resistance zone.
    • The chart shows a breakout above the trend line.
    • The chart shows that the market made a higher low and a higher high.
    • The chart shows that the market made a triple bottom.
    • The chart shows that the market is making a “W” pattern.  This is a bullish pattern.
    • The market did not crack more in spite of the Fed, Ukraine, China, and a new virus variant – this is bullish.
  • Here are the bearish arguments.
    • RSI is overbought.
    • The rally has been on low volume.
    • The rally was due to option expiration, and option expiration is now over.
    • Most of the rally is due to short squeeze.
    • The bullish gurus’ genius is not their own but the product of easy Fed policy over the last 14 years.
    • After 13 years, the Fed is about to embark on an aggressive tightening cycle – the genius of bullish gurus will soon disappear.
    • Bearish gurus point to the fourth quarter of 2018 when the Fed started tightening and the market quickly lost 20%. The Fed did not have the backbone to withstand further stock market drop, and the Fed reversed its policy. This time the Fed does not have a choice because of inflation.
  • So, what is the answer for investors who think for themselves?
    • There are strong arguments on both sides.
    • Stay nimble and in neutral.
    • Pay attention to the new data as it comes.
    • Stick to the protection bands.
See also  TACTICAL TARGET IS S&P 500 4100-4200 – LONG WAY TO GO FOR INFLATION TO COME DOWN TO FED’S TARGET

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks in the early trade.  Smart money is 🔒 in the early trade.

Gold

The momo crowd is 🔒 in gold in the early trade. Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

There is nothing remarkable in bitcoin trading.

Markets

Our very, very short-term early stock market indicator is 🔒 but know that option expiration related strength tends to reverse.  If the strength of last week related to options starts reversing, expect the machines to jump in and sell the market. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking up, and bonds are ticking down.

The dollar is stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1924, silver futures are at $25.18, and oil futures are $107.50.

S&P 500 futures resistance levels are 4460, 4600 and 4713: support levels are 4400, 4318 and 4200.

 futures are down 43 points.

See also  BULLISHNESS CREATED BY BANK OF CANADA TURNING DOVISH BALANCED BY RECESSION FEARS AND PUTIN WARNING

Protection Bands and What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or short-term bond funds or allocated to short-term tactical trades, and short to medium-term hedges of 🔒, and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.

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This post was just published on ZYX Buy Change Alert.

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Nigam Arora

Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.

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