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

New Good Developments On Vaccine

The stock market has been detached from economic reality. Investors, drunk with hopium, bored at home and unable to bet on sports have turned the stock market into a casino.

The stock market always looks ahead. Looking past the valley caused by coronavirus and hoping for good news on earnings in 2021 and a vaccine are sensible things to do for stock market investors. Pfizer (PFE) which is a large conservative company has announced promising early results on coronavirus vaccine along with its partner BioNTech (BNTX). Another large conservative company Johnson & Johnson (JNJ) also appears to be making progress faster than expected. Vaccines from Moderna (MRNA), Novavax (NVAX) and Inovio Pharmaceuticals (INO) are also in the running. However such good news and sensibilities do not justify the extent of the strong stock market rally from the lows. The real impetus behind the stock market strength has been money printing by the Fed and borrowing by the government. Now the politicians have set up the stock market for a fall in the month of July (explained later in this column). Not to worry — the Fed and the politicians believe that they are omni-powerful — they are going to come up with more ways to print and borrow money to keep the stock market going up.

What if you do not believe in the omni-power of the Fed and the politicians? Let’s explore with the help of a chart.

The Chart

Please click here for an annotated chart of Dow Jones Industrial Average (DIA) which represents the popular stock market index Dow Jones Industrial Average (DJIA).

Note the following:

• The chart shows island reversal.
• The island reversal pattern has been accompanied by high volume, Arora sentiment indicator giving a sell signal, an inside day following the island reversal, RSI at extremely overbought 95 and smart money selling near the highs. All of the foregoing makes this an especially important pattern to watch.
• The chart shows the resistance line.
• In a separate pane, the chart also shows the resistance line for S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).
• The chart shows that in spite of several strong rallies, the stock market has not been able to break the resistance line. The stock market will have to break the resistance line and stay there for at least a few days before going higher than the island to negate the negative pattern.
• Before turning bearish because of the pattern described, know that the whole pattern can be negated in a jiffy on good news on a vaccine or more money printing and borrowing announcements from Washington.
• This stock market has been controlled by the momo (momentum) crowd.
• The chart shows in the RSI pane, that the stock market has lost its momentum.
• The chart shows that volume is consistently not high. Compare the recent volume to the volume on the day island reversal occurred as shown on the chart.
• The chart also shows in separate panes the price action in two of the momo crowds’ favorite stocks: American Airlines (AAL) and Carnival (CCL).
• The chart shows both stocks have lost their momentum and the momo crowd is now sitting on big losses.
• Usually, the price at which a secondary takes place offers support. American stock secondary took place at $13.50 as shown on the chart. The expectations were for the stock to bounce hard after the secondary. However the stock has persisted below the secondary price.
• Unlike the momo crowds’ favorite stocks the big money is hiding in the five large cap tech stocks of Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG) (GOOGL) and Facebook (FB). All of these five stocks have stayed resilient. Prudent investors should carefully watch the charts of these five stocks for the first signs of a crack in the hopium bullishness or the first signs of another stock market bullish leg up to new highs.

Importance Of July

Without any new developments, here is how politicians have set up July for a stock market fall:

• The money that flowed into the economy from the Payroll Protection Program (PPP) was initially set to be used in an eight week period. This has now been extended to 24 weeks. However for a vast majority of the recipients, the money will be used up this month or has already been used up. The deadline for new loans from PPP was June 30. Now the deadline is in the process of being extended. However those who already have this loan cannot apply for more money. There is approximately $130 billion still unspent in the program but there is tepid demand for it. This is one of the early signs that as omni-powerful politicians think they are because they can borrow money to their hearts content, the economy may not absorb the money even when it comes with very liberal conditions.
• The government provided extra $600 per week in unemployment aid. This extra aid is set to expire in July.   Not to worry, politicians thought it appropriate to give a large number of people more money to not work compared to the money they were making before the coronavirus crisis. Such great brilliance in our leadership among our politicians will again rise to the occasion.
• Politicians managed to politicize the masks and exasperated the spread of coronavirus in several states. If the current trends hold, numbers of coronavirus cases can get to scary levels in July.
• Politicians also politicized the reopening of the economy with an eye on the November election as opposed to basing the reopening on sound principles of economics and science. The consequences of this politicization may become more evident in July.
• The Fed has already announced a broad range of programs financed by money printing. Some of these programs are meeting tepid demand. This is again an early sign that there is a limit to the benefit of the Fed’s programs. Not to worry, the Fed is hard at work racking their brains in trying to figure out how to solve the real problem — solvency of the zombie companies and a large number of Americans. Loaning money to insolvent borrowers does not solve the problem.

Momo Crowd And Smart Money In Stocks

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

Gold

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

For longer term, please see gold and silver ratings.

Oil

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

For longer term, please see oil ratings.

Marijuana

The momo crowd is buying marijuana stocks in the early trade. Smart money is inactive.

Technical Patterns

None of note.

This is powerful information and many investors use this to enter trades in addition to our official signals.  Here are the three most common uses: 1) Short-term trades in ETFs  2) Decisions to trim or add to long-term positions, and 3) New option trades. These should be used judiciously only in conjunction with macro, fundamental and quantitative indicators.  To learn more please click here.

Markets

Our very, very short-term early stock market indicator is neutral.  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 slightly stronger.

Gold futures are at $1792, silver futures are at $18.61, and oil futures are $39.79.

S&P 500 futures resistance levels are  3114, 3124 and  3155: support levels are 3075, 3009 and  2924.

DJIA futures are up 38  points.

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

Month End Cross Currents

There are both bullish and bearish month end cross currents at play.  These days machines exaggerate the move in both directions.  On the positive side there is still some window dressing in which better performing stocks are bought. On the negative side pension rebalancing may not be completely done.

Powell And Mnuchin Testimony

Fed Chair Powell and Treasury Secretary Mnuchin will testify before the House Financial Services Committee.  The historical record is that both of these men are interested in running up the stock market.

Trump Tax Cuts

Biden is saying that he will eliminate most tax cuts enacted by Trump.

Momo Crowd And Smart Money In Stocks

The momo crowd is acting like a yo-yo this morning in the premarket. Smart money is inactive.

Gold

The momo crowd is lightly buying gold in the early trade.  Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is acting like a yo-yo in oil in the early trade.  Smart money is inactive.

For longer term, please see oil ratings.

Marijuana

There is no discernable momo crowd or smart money activity in marijuana in the early trade..

Technical Patterns

None of note.

This is powerful information and many investors use this to enter trades in addition to our official signals.  Here are the three most common uses: 1) Short-term trades in ETFs  2) Decisions to trim or add to long-term positions, and 3) New option trades. These should be used judiciously only in conjunction with macro, fundamental and quantitative indicators.  To learn more please click here.

Markets

Our very, very short-term early stock market indicator is negative.  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  stronger.

Gold futures are at $1778, silver futures are at $18.08, and oil futures are $39.11.

S&P 500 futures resistance levels are  3075, 3114 and  3124: support levels are  3009, 2924 and  2870.

DJIA futures are down 124 points.

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

Lipstick On The Pig

Stock market spin masters are working overtime to put lipstick on the pig — the pig being spread of coronavirus. There doesn’t appear to be a shortage of gullible investors in the stock market who have bought into the thesis that virus spread is good for the stock market — the more the virus spreads the more money the Fed will print and the more money politicians will borrow. Certainly there is a lip service to the Main Street but make no mistake that in the end the money being printed and borrowed flows to the rich who invest. The average Joe or Jane is not a meaningful investor.

Under these circumstances, what should prudent stock market investors do? At this time, consider keeping a close watch on two important stock market levels and also on the tail risk to the ‘mother of support zones’. Let’s explore with the help of a chart.

The Chart

Please click here for an annotated chart of Dow Jones Industrial Average ETF (DIA) which represents the popular stock market index Dow Jones Industrial Average (DJIA).

Note the following:

• The chart is a monthly chart giving investors a long term perspective.
• The chart shows that the stock market has pulled back right in the middle of the support/resistance zone.
• The support/resistance zone shown on the chart is a battle ground zone.
• Investors should watch the lower band of the support/resistance zone which is around Dow Jones Industrial Average level of around 24,000. Equivalent in S&P 500 (SPX) is 2,900.
• If the levels given above are decisively broken, the middle support zone shown on the chart will come into play.
• The chart shows that in March the stock market touched the upper band of the ‘mother of support zones’ before staging a strong rally.
• Investors should not ignore the tail risk of the stock market approaching the mother of support zones again even though the mother of support zones is far away at this time. In plain English, tail risk means an event with low probability.
• On the upside, investors may want to keep a watch on the upper band of the support resistance zone which is around 26,720 in Dow Jones Industrial Average.
• The chart shows that RSI is rolling over and is close to giving a sell signal but a sell signal has not yet been given.
• Investors have been hiding in five big tech stocks of Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG) and Facebook (FB). It is important to keep watch on all five of them. Facebook is now coming under attack by advertisers objecting to its lack of control over hateful content. These objections may end up negatively affecting Google as well as Twitter (TWTR). For the long term investor, meaningful dips in Facebook, Google and Twitter will likely provide buying opportunities. We will be providing new buy zones as appropriate.
• Expect some selling from portfolio rebalancing and then buying from new quarter money going into the 4^th of July holiday unless there is significant news or activities related to short selling in the stock market.
• Pay attention to the important negative pattern that has formed in the stock market and is persisting.

What Does It All Mean?

An unprecedented war is taking place between the Fed and coronavirus. Especially under these circumstances, run away as far and as quickly as you can from the stock market gurus who claim to know with certainty that the stock market is going to crash or this is the start of a new bull market.

Consider embracing Arora’s second Law of Investing and Trading: Nobody knows with certainty what is going to happen next in the markets. Consider following up with Arora’s third Law: Making investing and trading decisions based on probabilities is the only realistic and profitable approach.

Especially in this stock market, probabilities can dramatically change quickly. Imagine great news on vaccine! Imagine virus spread rising to scary levels!

Momo Crowd And Smart Money In Stocks

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

Gold

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

For longer term, please see gold and silver ratings.

Oil

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

For longer term, please see oil ratings.

Marijuana

There is no discernable momo crowd or smart money active in marijuana in the early trade.

Technical Patterns

Marijuana stocks are tracing a pennant.  This is bearish. ETF of interest is MJ.

This is powerful information and many investors use this to enter trades in addition to our official signals.  Here are the three most common uses: 1) Short-term trades in ETFs  2) Decisions to trim or add to long-term positions, and 3) New option trades. These should be used judiciously only in conjunction with macro, fundamental and quantitative indicators.  To learn more please click here.

Markets

Our very, very short-term early stock market indicator is negative but expect the market to open 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 and bonds are range bound.

The dollar is  weaker.

Gold futures are at $1782, silver futures are at $18.05, and oil futures are $38.86.

S&P 500 futures resistance levels are  3075, 3114 and 3124: support levels are 3009, 2924 and  2870.

DJIA futures are up 118  points.