It is no secret that the stock market is driven by greed and fear. Normally I measure levels of greed and fear in the market using proven algorithms. At extremes, greed is a sell signal and fear is a buy signal for stocks.
The reaction to the coronavirus shows that there is an unprecedented amount of arrogance among the momo (momentum) crowd and the people who influence them. The stock market these days is controlled by the momo crowd. This combination of greed and arrogance may prove to be dangerous for investors. Let’s examine the danger with the help of two charts.
Please click here for an annotated chart of the SPDR Dow Jones Industrial Average ETF Trust DIA, which tracks the Dow Jones Industrial Average DJIA. For the sake of full transparency, this chart was previously published and nothing has been changed since then.
Please click here for an annotated intraday chart of the Invesco QQQ Trust QQQ which tracks the Nasdaq-100 Index NDX. Similar conclusions can be drawn from the chart of the SPDR S&P 500 ETF SPY.
Note the following:
• Smart money sold into the strength when the momo crowd proclaimed that the coronavirus was not of concern and the tiny dip in the stock market was a buying opportunity.
• The first chart shows that the trendline that has been in place during the latest acceleration in the stock market was broken on the coronavirus news.
• The first chart shows the support zone. If the stock market pulls back to the support zone, it may make sense to think in terms of buying opportunities.
• The first chart shows the Arora signal to raise cash and hedges near the highs in the stock market before the breakdown on coronavirus news. Based on this signal, the Arora Report long-term portfolios have been up to 63% protected.
• The first chart shows Arora signals to short-sell QQQ for a short-term trade. For those who could not short the signal was also given to buy the ProShares UltraPro Short QQQ ETF SQQQ. This inverse ETF goes up when the stock market goes down. (Bear in mind that short-selling and leverage ought to be used only by sophisticated investors.)
• The first chart shows RSI divergence. This is a negative.
• The second chart shows the gap down on the coronavirus news.
• The second chart shows proclamation of a buying opportunity by the momo crowd.
• The VUD indicator on the second chart shows aggressive buying after the momo crowd gurus proclaimed that the coronavirus was not of concern. The VUD indicator is the most sensitive measure of net supply demand in real time….Read more at MarketWatch.
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