You may not have heard of Arora’s Second Law of Investing: No one knows with certainty what is going to happen next.
Still, with the trajectory of the Dow Jones Industrial Average DJIA combined with investors’ bullishness, the benchmark index would hit 30,000 points on April 5. What are the odds that could happen?
I receive a large number of emails from investors. At The Arora Report, we pay careful attention to what investors are doing to compile our proprietary sentiment indicator. A segment of investors are acting like the current trend is going to continue at the present rate. They are buying aggressively. Is aggressive buying prudent? 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 DJIA. 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 were to continue its rise at the present rate, it will reach 30,000 on April 5.
• The first chart shows that 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.
• Relative strength index (RSI) shows that the market is overbought. Overbought markets are vulnerable to pullbacks.
• RSI on the chart shows a negative divergence. In plain English, this means that while the price has gone higher, RSI has gone lower. On the surface, this is a negative. However, investors must pay attention to the nuances. In this case, the important nuance to notice is that the negative divergence is confined to the overbought zone — this is a positive….Read more at MarketWatch.
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