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

Iranian General Killed

A revered Iranian general was killed in Baghdad by a drone strike authorized by President Trump. Major General, Qassim Suleimani was no ordinary general. He could have easily become the president of Iran someday. He was not only the architect of Iran’s military related foreign policy but was also the commander who carried out the policy.

To understand the escalation that has just occurred, consider that apparently Presidents Bush and Obama had rejected killing Suleimani because they did not want risk a war with Iran.

To understand the real impact on investors, let’s start with two charts.

Two Charts

Please click here for an annotated chart of Apple (AAPL) stock.

Please click here for an annotated 25-year chart of S&P 500 ETF (SPY), which tracks the benchmark S&P 500 Index (SPX). Similar conclusions can be drawn from the chart of Dow Jones Industrial Average (DJIA).

Note the following:

• If I was writing this column a while ago, I would have included a chart of oil such as oil ETF (USO). Now I am including a chart of Apple. There is a very good reason, please read on.
• The reason for including Apple and not oil is that the economy has changed. It is less reliant on oil. Yes, if oil rises it will negatively affect certain sectors such as airlines including Southwest Airlines (LUV), Delta Air Lines (DAL) and United Airlines (UAL) as well as certain retail stocks that cater to lower income consumers such as Walmart (WMT), Dollar General (DG) and Dollar Tree (DLTR).
• Compare the market cap of Apple to the entire oil sector. You will be surprised how big Apple has become and how small the oil sector has become. Yes, oil stocks such as Exxon Mobil (XOM), Halliburton (HAL) and Schlumberger (SLB) may go up but their impact will be minimal.
• Historically, the impact of such incidents has been short lived. Experience is a great teacher. When the first Gulf war started in 1990, I started short selling the market only to see the market shoot straight up. Obviously at that time I did not have the experience I have now.
• Historical precedences aside, there is a small probability that this time may be different. The reason is that we have hurt Iran’s pride. When a nations pride is hurt, that nation may not act rationally. The rational conclusion is that it is in the interest of all parties to deescalate the situation.
• Take a look at the second 25 year chart of the stock market. The market has gone up not because of oil but because of policies of the Federal Reserve and newer technologies.
• The conditioning of the market is that if there is sever retaliation from Iran, the Fed will come to the market’s rescue.
• The first chart shows the very strong move in Apple. Apple carries a large weight in indexes and as such has been one of the main propellers of this stock market along with other large cap stocks such as Facebook (FB), Amazon (AMZN), Google (GOOG) (GOOGL) and Microsoft (MSFT).
• The first chart shows extended overbought condition for Apple. Such a pattern augers for more strength often after a pullback.
• The first chart shows the support line for Apple which is still very high compared to where Apple stock was not that long ago.
• Apple stock, in part, has been driven by the sentiment. It is true that Apple is successfully making a transition to services and this has led to a higher P/E.
• Over five years ago, to the best of my knowledge, I was the first one to start projecting that Apple would get more into services and as a result get a higher P/E. Now that has happened. Even if oil prices go up, Apple is not going to stop its move into services. However the shift in sentiment could drive the stock lower.
• Semiconductor stocks such as AMD (AMD), Micron (MU), Intel (INTC) and NVIDIA (NVDA) have been the leading indicators of this stock market. Earnings of these semiconductor companies are not likely to be affected by a rise in oil. A war may increase the earnings of these companies.
• The lifeblood of the modern economy is semiconductors more than oil.

The Real Danger

The real danger to investors is not a war with Iran but the simple fact that this stock market is controlled by the momo (momentum) crowd. A big part of the buying has occurred just because the market is going up. The momo crowd is fickle and can easily start selling if the momentum reverses. For this high valuation, fundamental and macro underpinnings are weak for this stock market.

What Does This All Mean?

Investors ought to rely on proven adaptive models with a good track record in both bull and bear markets. A good example is ZYX Asset Allocation Model. At The Arora Report, we provide not only positions to hold and buy but also precise levels of cash and hedges to hold. In general all investors should have downside protection.

FOMC Minutes

FOMC minutes will be released at 2:00 pm ET and may provide relief to the stock market.

Momo Crowd And Smart Money In Stocks

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

Gold

Gold is rocketing as it should.  At times like this money always flows into the safe haven of gold.

The momo crowd is aggressively buying gold.  Smart money is also lightly buying gold.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is aggressively buying oil.  If Iran response aggressively by blocking the Straight of Hormuz oil can rocket to $80.  Smart money is inactive.

For longer term, please see oil ratings.

Marijuana

There is no discernable activity in marijuana.

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 $1549, silver futures are at $18.15, and oil futures are $63.36.

S&P 500 resistance levels are  3256, 3288 and 3300; support levels are 3200, 3143 and 3125.

DJIA futures are down 269 points.

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

The Chart

There are 10 things that stock market investors ought to watch in the month of January. First, let’s build the requisite background with the help of two charts.

Please click here for a long-term annotated chart of ETF (DIA), which tracks the Dow Jones Industrial Average DJIA.

Please click here for an annotated 25-year chart of S&P 500 ETF (SPY), which tracks the benchmark S&P 500 Index (SPX).

For the sake of full transparency, both of these charts were previously published and no changes have been made.

Note the following:

• From the first chart, the first target for the stock market is Dow 30,000 points, and the second target is over 32,000. Dow 30,000, during Trump’s first term, has been the long standing target given by The Arora Report
• To wit: When I gave a “buy” signal on Donald Trump’s election at a time when many were predicting a big stock market drop, it was at first met with incredulity. When shortly thereafter I called for a high-probability scenario of the Dow Jones Industrial Average hitting 30,000 points in Trump’s first term, I received a ton of hate mail. I have subsequently repeated that call several times.
• The first chart shows that the stock market was overbought about a month ago but there was room to run. To determine overbought and oversold conditions, the relative strength index (RSI) is the best indicator for a number of reasons. However, in addition to the science of using RSI, it is also an art that investors ought to learn. In general, in trending markets, overbought markets often become more overbought.
• There is one striking aspect in which the present-day stock market is similar to that of 1999.
• As the second chart shows, in 1999, the stock market was primarily controlled by the momo (momentum) crowd. And 20 years later, in 2019, the stock market is primarily controlled by the momo crowd again.
• Nobody wants to talk about the momo crowd because it is not in the interest of the establishment. The stock market is going up not because of higher earnings, not because the economy is getting significantly better and not because valuations are low. Buying in the stock market is occurring simply because it is going up. If analysts were to admit this simple fact, there would not be much need for their seemingly sophisticated analysis.
• The second chart shows RSI (relative strength index) divergence. In plain English, it means that as the stock market has risen, internal momentum is not keeping pace. This is a reason for caution.
• The second chart shows that volume is low. This indicates a lack of conviction in the rally. This is another reason for caution.

10 Things To Watch

Now that you have developed the requisite background from the charts, it is easy to understand the 10 things for stock market investors to watch in January.

• January effect will be in play. January effect can often generate as much as 30% return in a short time.
• New money pours in the stock market in the beginning of the year. Such money tends to drive the stock market higher.
• The stock market was very strong in 2019. For this reason, many investors held off booking gains in 2019 to defer taxes by one year. Such investors may start selling in January putting downward pressure on the market.
• Fourth quarter earnings are ahead. There is a lot of optimism about the earnings. The consensus is that earnings bottomed last year and now are on an upswing. There is a fairly high probability that the consensus may be wrong.
• A significant amount of new economic data will be released this month. At The Arora Report we follow economic data from 23 countries. It is no longer enough to watch the data only in the United States. Investors are optimistic and the consensus is that economies across the globe are on an upswing.
• Bears are gunning for a stock market fall in January. If a fall does not occur, expect a short squeeze exaggerating a move to the upside.
• If the stock market does not fall, expect FOMO (fear of missing out) to take hold with investors throwing money at ETFs without any other analysis. Investors are also suffering from recency bias.
• Semiconductors have been the leading indicators. For this reason consider watching stocks such as AMD (AMD), Micron (MU), Intel (INTC) and NVIDIA (NVDA).
• The indexes are heavily weighted by large-cap tech stocks. Consider watching Apple (AAPL), Facebook (FB), Amazon (AMZN) and Microsoft (MSFT).
• Gold has been very strong. Often strength in gold is based on a belief that the stock market may go down. Consider watching gold ETF (GLD), silver ETF (SLV) and gold miner ETF (GDX).

Jobless Claims

Initial Jobless Claims came at 222K vs. 225K consensus.  This is a leading indicator.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively buying stocks.  There is front running in anticipation of the new mutual fund and pension money buying stocks in the afternoon.  Smart money is inactive.

Gold

The momo crowd is aggressively buying gold.  Money is also flowing into gold due to the weak dollar.  The gold crowd is different from the stock crowd.  The gold crowd believes that the stock market rally is not sustainable and stocks are due for a fall, and that is the reason the say to buy gold now.   Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is buying oil.  Smart money is lightly selling oil.

For longer term, please see oil ratings.

Marijuana

The momo crowd is aggressively buying marijuana stocks.  Smart money is inactive.

Tax loss selling has abated lifting the pressure on marijuana stocks.

Technical Patterns

Oil and gas equipment stocks are tracing a continuation wedge.  This is bearish.  ETF of interest is XES.

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 positive.  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 weak.

Gold futures are at $1530, silver futures are at $18.10, and oil futures are $61.25.

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

DJIA futures are up 149 points.

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

Low Liquidity

Liquidity is low due to the holiday season.  For this reason, it is easy for the momo crowd to lift the market up even without significant buying.

Overbought Market

The market is very overbought.  Even though the general belief is that the market will continue to go up, astute investors should remember that overbought markets are vulnerable to the downside.  This market is especially vulnerable because it is driven by the momo crowd.  The momo crowd is fickle and can easily start selling if the momentum reverses.

Office Closed

Our offices will be closed tomorrow for New Years Eve.  There will be no Morning Capsule.

Weaker Dollar

The dollar is weaker for the third day in a row.  This deserves careful watching.

Momo Crowd And Smart Money In Stocks

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

Gold

The momo crowd is acting like a yo-yo in gold.  Smart money is inactive.

A weaker dollar is bringing some buying into gold.

For longer term, please see gold and silver ratings.

Oil

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

For longer term, please see oil ratings.

Marijuana

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

Technical Patterns

Brazilian stocks are tracing a inside bar.  This is bearish. ETF of interest is EWZ.

Material stocks are tracing an engulfing line.  This is bearish.  ETF of interest is XLB.

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 weaker.

Gold futures are at $1515, silver futures are at $17.90, and oil futures are $62.12.

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

DJIA futures are up 36 points.