WEEKLY STOCK MARKET DIGEST: PAY ATTENTION TO CLASSIC HEAD AND SHOULDERS PATTERN IN PROGRESS

Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report

Please scroll down for the section ‘Protection Bands and What To Do Now.’

CLASSIC HEAD AND SHOULDERS PATTERN IN PROGRESS – INTEREST RATES RISE

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

Head And Shoulders

Please click here for a chart of    Nasdaq 100 ETF ().

Note the following:

  • We have previously shared with you that a classic head and shoulders pattern had formed in tech stocks. This is a negative pattern.
  • Those less informed often do not understand that what happens after the pattern is formed is more important.  This is the subject of this Morning Capsule.
  • In a bull market, the momo crowd buys the dip and runs up the stocks after the pattern is formed.
  • Those less experienced with short selling, short sell when the pattern is formed and put their stops just above the neckline shown on the chart.
  • Smarter players know where the stops are. They engineer a short squeeze to take out the stops.  This is shown as a bounce on the chart.
  • Typically the market falls after the stops are taken out as is happening this morning.
  • Only after the stops are taken out and there is a dip, the price action starts to indicate what may happen next.  This is exactly where we are today.
  • Normally we would be giving a sell signal here.  However $1.9 trillion of free money is about to rain starting this weekend. There is anecdotal evidence that a large number of people are planning to put their free checks into momo stocks and bitcoin.  For this reason, it is important to stay neutral and watch the data as it comes.  Prudence requires paying attention to the ‘Protection Bands and What To Do Now?’ section below.

Yields Rise

Interest rates are rising on Biden signing on $1.9 trillion of additional borrowing.  The yields are rising because the smarter players are not buying into the free lunch theory of our leaders.

PPI

Core PPI came at 0.2% vs. 0.2% consensus.  This is again looking in the rearview mirror.  We expect PPI to rise over the coming months.

Momo Crowd And Smart Money In Stocks

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

Gold

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

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

Oil

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

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  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 $1701, silver futures are at $25.05, and oil futures are $65.81.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.

DJIA futures are up 22 points.

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, on dips, 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, 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.

THE U. S. ECONOMY ABOUT TO CATCH FIRE, FASTER MONEY PRINTING

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

Economy About To Catch Fire

Please click here for a chart of  U. S. GDP.

Note the following:

  • The chart shows GDP going back to 2000.
  • The chart shows that before the pandemic the U. S. economy was basically a 2% growth economy.
  • Due to heavy borrowing by the government and money printing by the Fed, there is already too much liquidity in the economy.
  • Combine the pent-up demand with excess liquidity- the result is the U. S economy is about to catch fire even without the $1.9 trillion stimulus.
  • The U. S. economy is showing signs of growing at 7% or higher.  Compare this to 2% growth before the pandemic.
  • The $1.9 trillion stimulus package is like dumping gasoline on a raging fire.
  • In theory, as Biden pours gasoline on the raging fire of the economy, inflation should pick up and interest rates should go up.
  • On one hand, the raging fire should help companies earn more.  On the other hand, PE multiples should contract.
  • There is also the possibility of the Fed using something like Operation Twist to prevent interest rates from rising.
  • For investors, there are significant opportunities accompanied by significant pitfalls ahead.

Faster Money Printing

European Central Bank (ECB) is speeding up bond purchases.  This is ECB’s response to prevent interest rates from rising.  Could the Fed do the same?

Jobless Claims

Initial claims came at 712K vs. 725K consensus.

Afternoon Capsule

There will be no Afternoon Capsule today.

Momo Crowd And Smart Money In Stocks

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

Gold

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

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

Oil

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

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  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 down and bonds are ticking up.

The dollar is weaker.

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 $1729, silver futures are at $26.33, and oil futures are $65.52.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.

DJIA futures are up 98 points.

INVESTORS LOOK AHEAD – TAME INFLATION DATA LIKE DRIVING LOOKING IN THE REARVIEW MIRROR

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

Mean Reversion

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

Note the following:

  • Please click here for the chart from yesterday’s Morning Capsule.
  • Yesterday we wrote,

To capture the opportunities and avoid the pitfalls investors need to be mindful of mean reversion that often occurs in the markets. In plain English, this means that in the short term, stocks and ETFs that have gone up too much pull back; at the same time, stocks and ETFs that have fallen too much bounce. Let this be your guiding light.

  • Compare the chart from today with the chart from yesterday.
  • The chart from today shows big mean reversion moves. You will see big moves in  and  but small moves in SPY and .
  • Please click here for the chart from yesterday’s Afternoon Capsule.
  • We wrote,

The chart shows that the price has steadily moved up but the magnitude of the VUD indicator is relatively low.

The reason the magnitude of the VUD indicator is low is because smart money bought near the lows and is no longer buying.  The momo crowd is buying but not aggressively because they just took huge losses.

  • Normally, after a strong move like yesterday, the expectation would have been for futures to be up big this morning.  However, Nasdaq futures were down before the inflation data was released at 8:30 am.  Yesterday’s call in the Afternoon Capsule has proven spot-on.

Driving Looking In The Rearview Mirror

Everyone knows they should drive mostly by looking through the front windshield and not only looking through the rearview mirror.  However, for some reason, the momo crowd does not get it.  They are running up futures on tame inflation data.  The data is for the last month.  Going forward inflation is likely to pick up.

CPI came at 0.4% vs. 0.4% consensus.  Core CPI came at 0.1% vs. 0.2% consensus.

Momo Crowd And Smart Money In Stocks

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

Gold

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

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

Oil

API data showed a build of crude inventories of 12.792M barrels vs. consensus of a build of 816K barrels.  This data is very bearish.

As a full disclosure, ZYX Short has a short position in oil from the high.

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

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  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 down and bonds are ticking up.

The dollar is  weaker.

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 $1716, silver futures are at $26.07, and oil futures are $64.48.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.

DJIA futures are up 184 points.

REDUCE CASH – PRUDENT INVESTORS PAY ATTENTION TO THE BIGGEST DIVERGENCE IN 28 YEARS

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

Reduce Cash

The Arora Report gave a sell signal one day before the market top. Of special note are our statements,

It is time to take more partial profits or full profits depending upon individual situations.

It is imperative to take more partial profits on the stocks that are based on the momo strategy.

Since then ETF , the favorite of the momo crowd has fallen 27.98% and was down 33% intraday. Many momo stocks have fallen 40 – 70%.

It is time to judiciously reduce cash by buying stocks and ETFs. For details, please see Protection Bands and What To Do Now? section below.

As a reminder, yesterday hedges were reduced.

It is important to know that there are still a good amount of hedges and a good amount of cash. The reason is that this market is a bubble – investors have the task of making great profits while protecting themselves at the same time.

Biggest Divergence In 28 Years

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

Note the following:

  • The chart compares  to Dow Jones Industrial Average ETF (), Nasdaq 100 ETF (), SPAC ETF () and the ETF ().   is the ETF  in which the momo crowd has been putting their parent’s retirement in because they did not want their parents to take risks and they considered  safe.
  • The chart shows Arora’s sell signal for momo stocks.
  • The chart shows that  has fallen 9.86%,  has fallen 22.01%, and the momo crowd’s low-risk safe ETF ARKK has fallen 27.98%.  These losses are based on the close during regular hours.  If you look at intraday, the losses for the momo crowd have been much higher.  For example, ARKK has been down as much as 33%.
  • The divergence between QQQ and  has been the largest in 28 years.
  • The divergence provides opportunities and pitfalls.
  • To capture the opportunities and avoid the pitfalls investors need to be mindful of mean reversion that often occurs in the markets. In plain English, this means that in the short term, stocks and ETFs that have gone up too much pull back; at the same time, stocks and ETFs that have fallen too much bounce.  Let this be your guiding light. 

Momo Crowd And Smart Money In Stocks

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

Gold

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

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

Oil

The momo crowd is 🔒 in oil. Smart money is 🔒.

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  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 weaker.

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 $1711, silver futures are at $25.91, and oil futures are $65.25.

S&P 500 futures resistance levels are 3860, 3950 and 4000: support levels are 3770, 3630 and 3600.

DJIA futures are up 83 points.

KEY TO THE STOCK MARKET IS BONDS – BETS AGAINST BONDS RISE

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

Key To The Stock Market

Please click here for a chart of 7-10 year Treasury Bond ETF ().

Note the following:

  • The chart is of ETF  as opposed to a chart of yield because  is the easiest for most investors to watch.
  • Bonds move inverse to interest rates.  In plain English, when interest rates go higher, bonds fall.
  • Our call has been that this stock market is a bubble.
  • The bubble is being inflated with heavy borrowing, money printing and low interest rates artificially enforced by the Fed.
  • We have repeatedly written that the biggest risk to this stock market is if the Fed loses control and interest rates rise.
  • No worries according to the Fed.  The Fed believes they are omnipotent.  Powell has stated several times that the Fed has enough tools to manage the situation.
  • With the passage of $1.9 trillion of the coronavirus stimulus bill in the Senate, more and more investors are realizing that Biden and Powell may have gone too far in heavy borrowing, money printing and pork for the rich disguised as attempts to help the working mom and pop.  The investors who are coming to this realization now are making bets against the bond market. 
  • The chart shows the downward sloping trendline. This indicates that bonds have fallen a lot.
  • Investors need to watch the support line shown on the chart and the resistance line shown on the chart.
  • A decisive break below the support will be bad news for the stock market.
  • A decisive break above the resistance line will be good news for the stock market.
  • Investors should also watch RSI shown on the chart.
  • Pay attention to the two white lines that are bounding the RSI.  RSI moving out of the band shown on the chart will provide significant information to investors.

The Bottom Line

Here is the bottom line.

  • Most investors should follow the ‘Protection Bands and What To Do Now?’ section below.
  • Most of our subscribers have followed the February 11 signal given one day before the market top.

SIGNAL: TAKE AT LEAST PARTIAL PROFITS IN THE PORTFOLIO THAT SURROUNDS THE CORE MODEL PORTFOLIO

Signal(s) to enter, add, reduce, exit, hold or change.

We recognize that all investors are different and they have different portfolios.  In the portfolio that surrounds the Core Model Portfolio, there are a large number of stocks where partial profits have already been taken.  It is time to take more partial profits or full profits depending upon individual situations.

It is imperative to take more partial profits on the stocks that are based on the momo strategy.

We are not predicting this, but investors need to be mindful of February 2020 when Nasdaq lost over 20% in one month. Also many momo stocks lost 30 -80% in February 2020.

If you hedge, consider increasing hedges within the  protection bands shown in the Morning Capsule.  At this point, protection bands are not being changed but consider moving up in the protection band range.  Protection bands are also your guide to determine how much profits to take.

  • Noone should get locked into an opinion.  It is important to stay neutral and pay attention to the new data as it comes in.

Momo Crowd And Smart Money In Stocks

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

Gold

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

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

Oil

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

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  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 $1688, silver futures are at $25.20, and oil futures are $66.75.

S&P 500 futures resistance levels are 3860, 3950 and 4000: support levels are 3770, 3630 and 3600.

DJIA futures are up 121 points.

Markets can generate substantial wealth for knowledgeable investors. 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.

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