The average investor has gone gaga over the potential China trade deal and the Federal Reserve becoming dovish. There is increasing talk of new highs in the stock market.
What should you do if you’re an astute investor? Let’s explore with the help of two charts.
Please click here for an annotated chart of S&P 500 ETF SPY which represents the S&P 500 Index SPX.
Please click here for an annotated chart of DJIA ETF DIA which represents the Dow Jones Industrial Average. (This chart is unchanged from the previous publication in February.) Similar conclusions can be drawn from the charts of Nasdaq 100 ETF QQQ and small-cap ETF IWM. Please note the following:
• The second chart shows that if the Dow Jones Industrial Average DJIA were to continue its rise at the rate shown on the chart, it would reach 30,000 on April 5, 2019. Since the publication of the chart, as expected, the pace of the increase has slowed. However, a previously bearish data point has turned positive and that is the next bullet item.
• Previously the relative strength index (RSI) was showing a negative divergence. In plain English, this meant that while the price was going higher, RSI was going lower.
• As the chart shows, RSI is now making a higher high than the last high. Also, the lows on RSI are rising.
• The foregoing is happening in the overbought zone.
In totality, this is a positive pattern and bodes well for new highs in the stock market if prices break out above the resistance zone. This is the most important point here.
• The first chart shows that the The Arora Report gave a buy signal right at the bottom on Christmas Eve.
• The first chart shows that The Arora Report portfolios were up to 61% protected before the stock market decline started.
• The first chart shows Arora’s calls prior to the Christmas Eve low that those lows were not the likely lows.
• The first chart shows that the volume is relatively low on this rally. Normally it is a negative but, paradoxically, in the present context it is a positive. The reason is that the low volume means that there has not been much conviction in this rally and institutions have not jumped aboard. This means there is plenty of fuel left to drive the market higher.
• The chart shows the resistance zone is overhead.
• The chart shows the support zone.
• After a strong rally, often the market pulls back to the support zone.
Investors are increasingly becoming familiar with Arora’s Second Law of Investing: No one knows with certainty what is going to happen next….Read more at MarketWatch.
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