WEEKLY STOCK MARKET DIGEST: NEGATIVE TECHNICAL PATTERN IN THE STOCK MARKET – 97% PROBABILITY OF 0.50% HIKE

By Nigam Arora & Dr. Natasha Arora

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.’

NEGATIVE TECHNICAL PATTERN IN THE STOCK MARKET – 97% PROBABILITY OF 0.50% HIKE

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

Outside Day

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:

  • The chart shows that a technical pattern known as “outside day” has formed.
    • Interpretation of an outside day depends on the context.
    • In the present context, this is a bearish pattern.
    • When an outside day, like the one shown on the chart, is accompanied by heavy volume, it is a strong signal.
      • The chart shows that volume was not heavy accompanying the outside day. For this reason, the negative signal is not as convincing as it seems on the surface. Nonetheless, investors should not ignore the negative implication of this outside day.  So far, the stock market is still above the support zone.  Here is the key question for investors: will the market enter the support zone today?
  • Investors should prepare to raise hedges if the market enters the support zone and the Adaptive ZYX Allocation Model supports such action.  

97% Probability

Now there is a 97% probability of the Fed increasing interest rates by 50 basis points.

China

Offshore Chinese yuan experienced the biggest weekly drop since 2015. Paradoxically, this will help cool down inflation as Chinese goods become cheaper for .S. consumers.

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 🔒 stocks in the early trade.

Gold

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is range bound.

Markets

Our very, very short-term early stock market indicator is 🔒. However, keep in mind that today is Friday, and short squeezes tend to occur on Fridays. A short squeeze can easily carry the market higher. 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 $1940, silver futures are at $24.34, and oil futures are $102.97.

S&P 500 futures resistance levels are 4400, 4460 and 4600: support levels are 4318, 4200 and 4000.

 futures are down 114 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, consider holding 🔒 in cash or treasury bills 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.

A RELIEF RALLY ON GOOD EARNINGS FROM TESLA, UNITED, AND AMERICAN

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

Relief Rally

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:

  • The chart shows a relief rally.
  • The relief rally is prompted by good earnings from Tesla (TSLA), United (UAL), and American (AAL).
    •  earnings were better than the whisper numbers. Growth margin, ex-credits, reached 30% for the first time – this is about double that of traditional auto manufacturers. In spite of the Shanghai lockdown, comments on guidance seem bullish.  It is becoming clear that the vast amount of data that  has gathered is proving to be a great advantage.
    • Both  and  earnings are not that great but projections are very bullish.
  • The chart shows that the market is consolidating above the support zone.  This is bullish.
  • The chart shows that RSI is tracing a “W” pattern.  This is a bullish pattern.

Jobless Claims

Initial claims came at 184K vs. 195K consensus.  This is a very strong number. Jobless claims is a leading indicator and carries heavy weight in our adaptive ZYX Allocation model with ten categories of inputs.

Marijuana 

Marijuana is now legal in New Jersey.  Opening of a new market is causing bullishness.  However in the recent past, bullishness has tended to quickly fade. The real event will be federal legalization.  Democrats favor legalization.  Republicans oppose it.  With Biden not doing well in opinion polls, federal legalization is likely to be pushed to 2025 unless Democrats do well in the mid-term election.

Momo Crowd And Smart Money In Stocks

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

Gold

The momo crowd is 🔒 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 bullishness in bitcoin with near perfect correlation with aggressive speculative stocks.

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 $1948, silver futures are at $24.83, and oil futures are $102.70.

S&P 500 futures resistance levels are 4600, 4713 and 4770: support levels are 4460, 4400 and 4318.

 futures are up 236 points.

SHOCKING GUIDANCE FROM THE STRONGEST MOMO STOCK

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

Shocking Guidance

Please click here for a chart of Netflix (NFLX).

Note the following:

  • The Morning Capsule is about the big picture and not individual stocks. The chart of  is being used to illustrate the larger point that is important to your portfolios.
  •  has been the strongest momo stock. The chart shows that the stock has dropped 64% in about five months.
  • The chart shows that the momo crowd was aggressively buying the stock and call options ahead of earnings. There were plenty of signs that earnings might be bad, but the momo crowd ignored them.  The consistent characteristic of the momo crowd is that they only focus on the potential reward and ignore the risks.  
  • The chart shows very heavy volume yesterday before the earnings as the momo crowd piled into Netflix stock going into the risk event of earnings. In contrast, smart money was selling yesterday to lighten their positions ahead of earnings.  
  • The anecdotal evidence is that some momo portfolios have been 25% – 75% in Netflix stock.
  • The chart shows that after earnings Netflix is gapping down 27%.
  • Netflix guidance was shocking.
    • Netflix lost 200K subscribers during Q1.
    • Netflix guides a loss of 2M subscribers in Q2.
  • Netflix has been a very expensive stock, so there is no valuation support.
  • FAANG stocks have been very popular. The “N” in FAANG is Netflix. The other stocks are FB, AMZN, AAPL, and GOOG.   is also grouped with FAANG stocks.
  • Here are the key points.
    • When momo stocks started falling, the momo crowd started buying more  as they thought it was safe. Most analysts had buy ratings.
    • The Arora Report did not fall for the bullishness in NFLX, and it was not in the Model Portfolio. The Arora Report has repeatedly given signals to short sell the stock for short term trades.
    • Right now, investors are hiding in AAPL, AMZN, and  because they deem them to be safe, just like they deemed  to be safe five months ago.
  • This underscores the importance of diversification.
  • We advocate for diversification by strategies in addition to sectors.  The Arora Report uses over 50 different strategies as appropriate.
  • As an actionable item, review your portfolio and see if you are overly concentrated in some stocks such as AAPL. Take a look at the risk reward matrix in the Model Portfolio.
    •  is in the Model Portfolio, but there are three risks that the market is not taking into account.
      •  does big business in China. If the relationship between China and the United States deteriorates,  may become a target of the Chinese government. On the positive side, AAPL has skillfully managed its relationship with the Chinese government.
      •  has become bigger than is prudent in many institutional portfolios. If something goes wrong, everyone would try to rush out of a small door.
      • Many individual investors, on purpose, have lately been selling other stocks to buy more AAPL. Such investors typically have 50% – 100% of their portfolio in AAPL.
      • To be absolutely clear, we have a higher target for  and  is in the Core Model Portfolio. The foregoing is meant to bring to your attention prudent portfolio construction practices.

Europe

Car sales in Europe dropped by 19% in March.  Investors need to keep an eye on car sales in the United States.

China

China is reiterating that it plans to strengthen its ties with Russia.  Please see above for the China risk in  stock that everybody is ignoring.

Momo Crowd And Smart Money In Stocks

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

Gold

The momo crowd is 🔒 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 bullishness in bitcoin as it correlates with buying of aggressive speculative stocks.

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 $1951, silver futures are at $25.20, and oil futures are $103.02.

S&P 500 futures resistance levels are 4600, 4713 and 4770: support levels are 4460, 4400 and 4318.

 futures are up 122 points.

MOMO BUYING UNFAZED IN THE FACE OF 3% YIELD AND LONGEST JAPANESE YEN LOSSES IN 50 YEARS

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

58% Gain In 4.5 Months

Please click here for a chart of inverse bond ETF TBT.

Note the following:

  • On April 8, we shared with you the rare occurrence of  moving up 32% from its low in about four months.  is a leveraged inverse ETF that moves up when interest rates rise. Such a strong move up in yield should have, in theory, caused more selling pressure in stocks than had been seen at that time.
  • The chart shows that now  has gained 58% since its recent low in about 4.5 months.  This is the fastest move in recent history.
  • The yield on 30-year Treasuries is at 2.99% and on 10-year Treasuries is at 2.91% as of this writing. The interest rate on a 30-year mortgage is 5.25%.
  • Based on the foregoing, per most conventional models, the S&P 500 should have breached the recent lows and fallen to about 4000.  S&P 500 is trading at 4384.75 as of this writing.
  • The reason for the strength in the stock market in the face of rising yields is due to the recency bias among the momo crowd. The recency bias is two fold.
    • All dips are buying opportunities.
    • The stock market always makes new highs in a short time.
  • If the foregoing was not enough, the Japanese yen is now at 128 against the dollar.  The Japanese yen has been experiencing the longest series of losses in 50 years. Normally, such strength would have put pressure on the stock market, but the momo crowd is oblivious and keeps on buying.
  • Some relief may be on the way. The chart shows that RSI on  is at 97.13. Further, RSI has stayed this overbought for several days. This is unprecedented in recent history.  When something is this overbought, it tends to pullback.  If such a pullback occurs, that may encourage momo gurus to urge their followers to buy stocks more aggressively.  
  • As momo buying is unfazed, smart money continues to sell into the strength. What happens next will come down to who wins the battle – momo crowd or smart money.
  • Irrespective of who wins the battle, prudent investors should look at this situation as a war with several battles.
  • The sum total of the foregoing as an actionable item is in the “Protection Bands And What To Do Now” section below.

Housing Starts

Housing Starts came at 1.793M vs. 1.7M consensus.

Building permits came at 1.873M vs. 1.84M consensus.

These are very strong numbers in the face of rising interest rates. The strength is in multifamily housing.

Momo Crowd And Smart Money In Stocks

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

Gold

There is disappointment in gold that it was not able to overcome the psychological resistance at $2000.

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

For longer-term, please see oil ratings.

Bitcoin

There is bullishness in bitcoin on a spot bitcoin ETF to start trading in Australia next week. The expectation is that this is a positive development towards the SEC eventually allowing a spot bitcoin ETF in the United States. Such a development will significantly increase demand for bitcoin.

Markets

Our very, very short-term early stock market indicator is 🔒, but technically, the stock market is at a place where bulls may want to take a stand and run it up.  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 $1970, silver futures are at $25.99, and oil futures are $104.90.

S&P 500 futures resistance levels are 4400, 4460 and 4600: support levels are 4318, 4200 and 4000.

 futures are down 11 points.

INVESTORS PAY ATTENTION: GURUS’ WISDOM SHATTERED

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

Gurus’ Wisdom Shattered

Please click here for a chart of gold ETF (GLD).

Note the following:

  • The chart compares gold to bitcoin, bonds and the dollar index.
  • Over the last few years,a majority of gurus have been stating  the following wisdom.
    • Gold was obsolete.
    • Gold was replaced by bitcoin.
    • Gold was no longer a hedge against inflation.
    • Bitcoin was the new hedge against inflation.
    • The stock market would continue to go up.
  • If you were to ignore the gurus over the last couple of years, the following conventional wisdom has been true.
    • Gold falls when interest rates go up. Bonds fall when interest rates go up.
    • Gold falls when the dollar goes up.
  • The chart shows that bonds have fallen as interest rates have risen.
  • The chart shows the dollar has risen.
  • The chart shows gold has been rising.
  • Based on the conventional long standing wisdom, gold should have fallen as the dollar has gone up and bonds have fallen.
    • The chart shows that instead of falling, gold has been rising.
    • Based on most conventional models, gold should have fallen to $1,600 – $1,700 range.
    • Gold is now trading around $2,000.
  • It is no secret that the stock market has been falling.
  • The chart shows that bitcoin has been very volatile and has fallen.
    • The new wisdom has been that bitcoin would go much higher if there was inflation and if the stock market fell.
  • The sum total of the foregoing is that both the long standing conventional wisdom and the new found wisdom of the gurus are being shattered.
  • For those who want the next-level information, an in depth podcast titled Gold: A Remarkable Reaction to Interest Rates is available.

China

China GDP is topping expectations. GDP came at 4.8% vs. 4.4% consensus.

Momo Crowd And Smart Money In Stocks

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

Gold

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

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

Oil

There is interruption in oil production in Libya

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin has fallen below $40,000. Selling in speculative aggressive stocks is leading to selling in bitcoin.

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 $1997, silver futures are at $26.35, and oil futures are $106.90.

S&P 500 futures resistance levels are 4400, 4460 and 4600: support levels are 4318, 4200 and 4000.

futures are down 25 points.

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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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