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

Fed’s Favorite Inflation Data

The Fed’s favorite inflation gage is Personal Consumption Expenditures (PCE).  Headline PCE month-over-month came at 0.3% vs. 0.2% consensus.

Core PCE month-over-month came at 0.2% vs. 0.2% consensus.

Year-over-year, PCE is running at 1.6%. The Fed’s target is 2.0%.   The Fed is likely to keep on printing money in one form or another until PCE reaches 2.0%.  All investors should make note of the foregoing because the Fed’s easy policy is the air that is inflating this stock market bubble. If the Fed were to normalize its monetary policy, the stock market could easily see a fall of over 50%.  No worries, the Fed is determined to maintain its  easy money policy for the time being.  However the most important thing for all investors is to keep a close eye on the Fed to catch early any shifts in monetary policy.

China PMI

China Manufacturing PMI came at 50.0 vs. 50.1 consensus.  This is a weak number and does not even include the impact of coronavirus.

If the stock market was not controlled by the momo crowd, this number would have caused a negative reaction in the stock market.

Europe

EU GDP came at 1.0% vs. 1.2% consensus.

The Bull Case

The bull case for the stock market is based on global growth reaccelerating after a slow down last year.  So far the macro data does not support the bull case.

Coronavirus

Yesterday the World Health Organization (WHO) declared a health emergency.  Investors aggressively bought on the news.  The reason is that during SARS, the day WHO declared an emergency turned out to be the low in the stock market.  However investors are forgetting that at that time the stock market was not overbought like it is now. 

Wall Street’s half baked analysis is  proof positive of a very bullish sentiment in the stock market.  As we have written before, at extremes sentiment is a contrary signal.  In plain English, extreme bullish sentiment is a sell signal.

Iowa Caucus

The Iowa caucus is this weekend.  In opinion polls, Bernie Sanders is leading.  So far, the stock market has ignored Bernie Sanders’ popularity because Wall Street believes Trump will win.

If Sanders wins Iowa, Wall Street may take notice and this may put negative pressure on the market.

Momo Crowd And Smart Money In Stocks

The momo crowd aggressively bought stocks yesterday afternoon and after hours.  This morning in the early trade, the momo crowd is selling stocks.  Smart money is also lightly selling.

Gold

The momo crowd is buying gold.  Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

Yesterday afternoon the momo crowd aggressively bought oil and continued to buy oil throughout the evening.  This morning the momo crowd is selling oil.  Smart money is inactive.

For longer term, please see oil ratings.

Marijuana

There is no discernable momo crowd or smart money activity.

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 up and bonds are ticking down.

The dollar is weaker.

Gold futures are at $1585, silver futures are at $17.83, and oil futures are $52.31.

S&P 500 resistance levels are  3288, 3300 and 3360; support levels are 3256, 3223 and 3200.

DJIA futures are down 143 points.

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

Strong GDP

Q4GDP-Advanced came at 2.1% vs. 1.8% consensus.

Initial Claims came at 216K vs. 214K consensus.

Coronavirus

It is no secret that the stock market is driven by greed and fear. Normally I measure levels of greed and fear in the stock market using proven algorithms. At extremes greed is a sell signal and fear is a buy signal for stocks.

Coronavirus shows that there is an unprecedented amount of arrogance among the momo crowd and their gurus not seen in a decade. The stock market these days is controlled by the momo (momentum) 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.

Two chart

Please click here for an annotated chart of the Dow Jones Industrial Average ETF (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 the publication.

Please click here for an annotated intraday chart of Nasdaq 100 ETF (QQQ). Similar conclusions can be drawn from the chart of S&P 500 ETF (SPY).

Note the following:

• The first chart shows that the trendline that has been in place during the latest acceleration in the stock market was broken on the news of coronavirus.
• The first chart shows the support zone. If the stock market pulls back to the support zone shown on the chart, it may make sense to think in terms of buying opportunities.
• The first chart shows 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 Nasdaq 100 ETF QQQ for a short term trade. For those who could not short the signal was also given to buy inverse ETF SQQQ. This inverse ETF goes up when the stock market goes down.
• The first chart shows RSI divergence. This is a negative.
• The second chart shows gap down on coronavirus news.
• The second chart shows proclamation of a buying opportunity by the momo crowd and their gurus.
• The VUD indicator on the second chart shows aggressive buying after the momo crowd gurus proclaimed that the coronavirus was not of concern. VUD indicator is the most sensitive measure of net supply demand in real time.

Earnings

Since the coronavirus news, Apple (AAPL) and Microsoft (MSFT) have reported exceptionally strong earnings. However, both of these strong earnings should have already been discounted in the elevated stock prices.

Facebook (FB), reported weaker than expected earnings.

Semiconductors have been the leading indicator of this stock market. Among semiconductors, AMD (AMD) and Xilinx (XLNX) reported weaker than expected earnings but Lam Research (LRCX) reported better than expected earnings.

Tesla (TSLA) reported a game changing quarter after the recent epic short squeeze.

Greed and arrogance

Most investors are familiar with greed.

Would you say that there is extreme arrogance after considering the following points?

• The momo crowd and their gurus, who are not virologist or epidemiologists, quickly declared that coronavirus was of no concern.
• Such proclamations happened at a time when epidemiologists and virologist were concerned.
• It was known that the virus had up to two weeks of incubation period.
• It was known that asymptomatic humans were contagious.
• It was known that about five million people managed to flee the epicenter of the virus and were not likely being tracked.
• There were serious concerns about the transparency of the information coming out of China. After all, no government would want to spread the panic. It would seem that it would be in a government’s interest to skew the statistics to minimize the impact.
• The buy signals were being given only after 2 – 3% pullback after a massive rally.

I previously wrote that there was 90% probability that the virus would be contained but investors should not ignore the small probability of a significant spread.

Momo Crowd And Smart Money In Stocks

The momo crowd is selling stocks.  Smart money is inactive.

Gold

The momo crowd is buying gold.  Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is selling oil.  Smart money is inactive.

For longer term, please see oil ratings.

Marijuana

The momo crowd is selling marijuana stocks.  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 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 weaker.

Gold futures are at $1584, silver futures are at $17.88, and oil futures are $52.09.

S&P 500 resistance levels are  3256, 3288 and 3300; support levels are 3223, 3200 and 3143.

DJIA futures are down 176 points.

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

Fed Policy

The Fed has been inflating the stock bubble. Stocks have been rising since late last year in lockstep with the Fed’s balance sheet.

Please click here for a chart showing the rapid rise in Federal Reserves assets.

The Fed will announce its policy decision at 2:00 pm ET.  No change is expected in interest rates.  However the consensus is that the Fed will continue to print more money.  If the Fed decides to stop printing money or decides to print less money, the stock market is likely to fall as much as 20%.

Coronavirus

Coronavirus keeps on spreading but the momo crowd does not care.  Please see yesterday’s Morning Capsule.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively buying stocks.   Smart money is lightly selling into the strength.

Gold

The momo crowd is selling gold.  Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is buying oil.  Smart money is inactive.

API data showed 4.3M barrel decline vs. consensus of 482K build.

For longer term, please see oil ratings.

Marijuana

The momo crowd is buying marijuana stocks.  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 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 are ticking down and bonds are ticking up.

The dollar is stronger

Gold futures are at $1570, silver futures are at $17.48, and oil futures are $54.15.

S&P 500 resistance levels are  3288, 3300 and 3360; support levels are 3256, 3223 and 3200.

DJIA futures are up 144 points.

ARROGANT MOMO GURUS PROCLAIM CORONAVIRUS OF NO CONSEQUENCE AND ‘ALL CLEAR’ TO BUY THE DIP

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

Coronavirus

Coronavirus is an obvious concern to stock market investors. The media is full of information of all kinds about coronavirus. What should stock market investors be focused on? Let’s explore with the help of a chart as to what stock market investors ought to know about the impact of the coronavirus on the stock market.

The Chart

Please click here for an annotated chart of Dow Jones Industrial Average (DJIA) ETF (DIA). Similar conclusions can be drawn from the charts of S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQ).

Note the following:

• The stock market has been very overbought. I previously wrote on the very first report of the virus, “Overbought markets tend to be vulnerable. Sometimes it is an exogenous event that topples stocks. What could be happening currently? Could it be that the deadly virus spreading across China stops the buying frenzy in stocks? The first U.S. case was reported Tuesday.” I have subsequently repeated it. The chart shows last week before the stock market drop The Arora Report gave a signal to raise cash and hedges. Our portfolios are now up to 63% protected.
• The chart shows that The Arora Report also gave a signal to short sell Nasdaq 100 ETF QQQ prior to the stock market drop and added to the signal. For those who could not short a signal was given to buy inversed leveraged ETF (SQQQ). SQQQ goes up when the stock market goes down.
• The chart shows that the trend line that has been in place since October has now broken. This should be of concern to the momo (momentum) crowd and very short term traders but should not be of concern to very long term investors.
• The chart shows the support zone. If the support zone is not held, that should be a concern to long term investors.
• The chart shows RSI divergence. The RSI divergence foretold the present pullback.
• Investors suffer from a recency bias.
• Recency bias is that issues similar to coronavirus are short lived and stocks should be bought on the dips.
• To counter the recency bias, investors should look at 1918 Spanish flu in which 30 to 50 million people died and 500 million people were infected.
• Since 1918, both medical science and communications have dramatically advanced. These should help contain the virus. On the flip side, the world is more interconnected now and there is significantly more travel compared to 1918. Better communications help control the disease but they can also be instrumental in creating panic.
• Scientists have already determined the genetic code of coronavirus. This should make it possible to make a vaccine. However a potential vaccine is several months away.
• It is conceivable that one of the existing antiviral drugs including those used against HIV may prove to be effective against this virus.
• Highly applicable here is Arora’s Second Law of Investing and Trading: Nobody knows with certainty what is going to happen next in the markets.
• The only realistic way for investors to deal with coronavirus is to think in terms of probabilities. In our analysis at The Arora Report, the probability is better than 90% that by springtime this virus will be well controlled.
• Even though the probability is low that this virus will become something more than recent virus epidemics, investors should not ignore this small probability.
• So far significant mutations have not been found indicating that this is a recent virus. However not enough is known about how this virus may mutate. How this virus mutates may have a major impact on the eventual result.
• Keep a close eye on statements from World Health Organization (WHO). These statements tend to move the stock market.
• Typically when the number of new cases stops going higher, stock market starts going higher.
• A huge risk to the stock market is that this virus has come along at a time of extreme bullishness in the stock market. This is a negative.
• As important as coronavirus is, earnings from mega-caps Apple (AAPL), Amazon (AMZN), Facebook (FB), Google (GOOG) (GOOGL) and Microsoft (MSFT) are ahead. If these earnings are less than stellar, look out below.
• Semiconductor stocks have been a leading indicator. Intel (INTC) reported great earnings. Keep a close eye on semiconductor stocks such as AMD (AMD), Micron (MU), NVIDIA (NVDA) and Applied Materials (AMAT).
• Tesla (TSLA) stock has been an epic short squeeze. How this short squeeze behaves will be an early clue. As a full disclosure, based on our algorithms, one of The Arora Report’s services took a short position in Tesla right close to the recent top.
• Keep an eye on oil. An easy way for investors who do not watch futures is to keep an eye on ETF (USO). As a full disclosure, The Arora Report has a position in inverse oil ETF (DWT) that goes up when oil goes down and also a short position in oil ETF (USO). Oil can also often be an early clue for the stock market.
• Keep an eye on the difference between the movement in gold ETF (GLD) and silver ETF (SLV). In theory gold should be going up if the crisis worsens because of safe haven demand. Silver has higher beta than gold. However silver in theory should be going up less than it would normally or even maybe going down because silver is impacted by economic activity. A close watch on the difference between price movements in gold and silver may give an early clue as to how the stock market reacts to the coronavirus and when the stock market may turn to the upside.
• In addition to protecting long term portfolios, adding to the positions as stocks and ETFs fall into Arora buy zones within the constraints of prescribed cash and hedge levels, investors may consider taking advantage of short term trading opportunities.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively selling stocks.  Smart money is inactive.

Gold

Money is flowing into the safe haven of gold.

The momo crowd is aggressively buying gold.  Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is aggressively selling oil.  Smart money is inactive.

For longer term, please see oil ratings.

Marijuana

The momo crowd is selling marijuana stocks.  Smart money is inactive.

Technical Patterns

Biotechs are tracing a double top. This is bearish.  ETF of interest is XBI.

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 weaker.  Money is flowing into yen.

Gold futures are at $1581, silver futures are at $18.24, and oil futures are $52.81.

S&P 500 resistance levels are  3256, 3288 and 3300; support levels are 3223, 3200 and 3143.

DJIA futures are down 439 points.