The stock market is acting schizophrenic. It has wild swings. Similar news is received positively on one day and negatively on another day.

How can investors navigate this market? Let us explore with a chart.


Please click here for the annotated chart. The chart is of S&P 500 ETF SPY.  Similar observations can be made from the charts of Dow Jones Industrial Average DJIA,  Nasdaq 100 ETF QQQ,  and small-cap ETF IWM.  Please observe the following from the chart:

• The chart shows three indicators: True Range, Average Daily Range and Average True Range. Those indicators are similar but have their own nuances. For practical purposes, investors need only one of these indicators. The reason for showing all three is to keep the focus on the main point and avoid a debate on which indicator should have been used on the chart.

• The chart shows the 2008 stock market crash.

• The chart shows various periods when the range expanded with red triangles.

• Range expansion is almost always associated with a dip.

• The chart shows that most of the dips have been small.

• Compare the range expansion this time with the range expansion during the 2008 crash. This is shown on the chart with two horizontal white lines.

The range has also expanded on popular stocks such as Amazon AMZN, Facebook FB,  Alphabet GOOG,  GOOGL,  Netflix NFLX, Micron MU,  and Applied Materials AMAT.

The conclusion from the foregoing is that the probability of something more than a garden-variety correction cannot be ruled out because the range has expanded more than previous corrections. For this reason, investors need to be better prepared.


Dow 30,000 and trade war

When the Dow Jones Industrial Average was trading around 18,000 points and almost nobody was talking about the kind of bullish market we have seen, The Arora Report first laid out both fundamental and technical scenarios for Dow 30,000….Read more at MarketWatch.


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