WEEKLY STOCK MARKET DIGEST: HEAD AND SHOULDERS PATTERN FORMED – BIDEN AND POWELL GONE TOO FAR

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.’

BIDEN AND POWELL GONE TOO FAR – HEAD AND SHOULDERS FORMED

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

Head And Shoulders

Please click here for a chart of Nasdaq 100 ETF ().

Note the following:

  • The chart shows a head and shoulders pattern has formed. The pattern consists of the left shoulder as shown on the chart, the head and the right shoulder.
  • The chart shows the neckline.
  • The head and shoulders pattern is complete when the neckline is broken as shown on the chart.
  • Head and shoulders is a negative pattern and indicates a top.  It works, in isolation, about 60 – 70% of the time.
  • Head and shoulder pattern should always be analyzed in conjunction with other indicators.
  • On March  2nd, before the big selloff, the Arora Report headline read,

SENTIMENT IN POPULAR MOMO STOCKS AT EXTREME

  • We also wrote,

We have previously shared repeatedly with you that when sentiment reaches extremes, it is a contrary indicator. In plain English, it is a sell signal.

  • The chart shows positive divergence in RSI. This is bullish in the very short term.
  • The chart shows RSI is oversold.
  • The chart shows volume was very high on the selloff.
  • Typically, but not always, a combination of neckline broken, RSI oversold, positive divergence and heavy volume leads to a very short term bounce.
  • Investors need to bring some sophistication to their investing – distinguish the calls for different time frames.  The market can go up in one time frame and go down in another time frame.
  • ZYX Change Method and ZYX Asset Allocation Method have been optimized to help private investors, money managers, investment advisors and institutions to maximize wealth generation over a lifetime.

Biden And Powell Gone Too Far

The data released this morning shows that Biden has gone too far with free money and Powell has gone too far with money printing.

Nonfarm Private Payrolls came at 465K vs. 195K consensus.  This is an extremely strong number even though the economy has not fully opened. Politicians continue to act as though they are blind to the hard data that is coming in.

Momo Crowd And Smart Money In Stocks

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

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 aggressively buying oil in the early trade.  Smart money is selling oil into the strength.

For longer-term, please see oil ratings.

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 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 $1690, silver futures are at $25.15, and oil futures are $65.74.

S&P 500 futures resistance levels are 3860, 3950 and 4000: support levels are 3770, 3630 and 3600.

DJIA futures are up 247 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, on dips, consider holding 26% – 36% in cash or treasury bills or short-term bond funds or allocated to short-term tactical trades and short to medium-term hedges of 3% – 6% and short term hedges of 7% – 11%. 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, 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.

ARORA SIGNAL TO TAKE PARTIAL PROFITS GIVEN AT THE TOP – POWELL WILL TRY TO SAVE THE STOCK MARKET

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

Arora Signal Right At The Top

Please click here for a chart of    Nasdaq 100 ETF ().

Note the following:

  • The chart shows the Arora signal to take partial profits and increase protection was given one day prior to the market top before a significant dip.  Predicting markets is tough and very few have a great long term success record.  We are humbled at The Arora Report to have provided the most accurate analysis for the last 14 years in a row.  Nonetheless, it is very important for investors to know that the nature of the market is such that we may be wrong in the future and investors need to take that into account.
  • On February 11, the headline read,

SIGNAL: TAKE AT LEAST PARTIAL PROFITS IN THE PORTFOLIO THAT SURROUNDS THE CORE MODEL PORTFOLIO

  • We wrote,

It is time to take more partial profits or full profits depending upon individual situations.

It is imperative to take more partial profits on the stocks that are based on the momo strategy.

  • Regarding protection, our call was,

At this point, protection bands are not being changed but consider moving up in the protection band range.

  • There are always crosscurrents in the markets – both bullish and bearish.  It is important for investors to analyze all important cross currents and not get locked in one opinion.
  • The chart shows that the trendline is decisively broken.  This is a negative.
  • If the past pattern of the momo crowd holds, the momo crowd will continue to aggressively buy the dip.  Investors need to watch if such buying can lead to the trendline breakout to the upside.
  • The chart shows that RSI is oversold.  When RSI is oversold, the market can quickly have up spikes.
  • The RSI pattern shown on the chart is a bullish pattern.  This is a positive.
  • The chart shows that volume has been heavy on down days. This is a negative.
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • Please click here for a chart showing that VUD indicator was solid orange yesterday. VUD indicator has not been this orange in a while.
  • The implication of the VUD indicator being so orange with high amplitude is contrary to what you might think.  Often when there is such heavy net supply of stocks, this is a contrary indicator or a buy signal. The reason is that often investors who are going to sell have already sold.

Powell May Inflate

Powell will be speaking at a webinar today.  It is almost certain that he will repeat his posture about easy monetary policy and money printing irrespective of the data that argues against this policy.  There is a reasonable probability that Powell’s speech will result in the market going higher.  If after Powell’s speech the market does not go higher, it will be of serious concern as it will indicate that the market behavior is changing.

Jobless Claims

Initial Jobless Claims came at 745K vs. 725K consensus.

Momo Crowd And Smart Money In Stocks

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

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

OPEC and Russia are talking about increasing oil production by 1M bpd.

So far the momo crowd is ignoring the potential production increase.  The momo crowd is buying oil in the early trade.  Smart money is selling oil in the early trade.

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is positive but expect Nasdaq to open lower.  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 $1713, silver futures are at $26.13, and oil futures are $62.41.

S&P 500 futures resistance levels are 3860, 3950 and 4000: support levels are 3770, 3630 and 3600.

DJIA futures are up 30 points.

MOMO BUYING STOCKS ON STEPPED UP VACCINE AVAILABILITY

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

Stepped Up Vaccine Availability

Please click here for a chart of  S&P 500 ETF () early vaccine which represents the benchmark for the stock market index ().

Note the following:

  • Biden has announced that there will be enough vaccine for all adults by the end of May.  This is about two months earlier than the prior plan.
  • Stepped up availability of the vaccine is creating significant optimism among investors.
  • RSI shown on the chart is tracing a powerful pattern that can drive the market much higher.
  • On the negative side, the chart shows that the volume was higher on recent down days compared to up days.
  • The chart shows the resistance and micro support.
  • For the market to move higher, it will first need to break the resistance.
  • The other impediment in the way of the market moving higher is that every time the market spikes up, smart money sells into the strength.
  • Investors need to differentiate between various time frames.  For example, yesterday’s call from a top Chinese regulator was for the medium term.  RSI pattern if it works, is short-term.
  • The sum total of all the information and data that is received and we publish is fed into the ZYX Asset Allocation with 10 categories of inputs.
  • The output from the model is turned into actionable input for investors as summarized in the ‘Protection Bands and What To Do Now?’ below.
  • Many newer investors are under the false impression that they have only two choices: be 100% in the market or be 100% out.  Such investors should take time and bring more sophistication to their investing.

ADP Data

ADP is the largest private payroll processor in the country.  It uses it data to provide a glimpse of the employment picture ahead of the official jobs report that will be released on Friday at 8:30 am ET.

ADP employment change came at 117K vs. 180K consensus.

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 aggressively 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.

Markets

Our very, very short-term early stock market indicator is neutral and can easily swing either way.  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 $1707, silver futures are at $26.07, and oil futures are $60.78.

S&P 500 futures resistance levels are 3860, 3950 and 4000: support levels are 3770, 3630 and 3600.

DJIA futures are up 2 points.

PAY ATTENTION: TOP REGULATOR ‘VERY WORRIED’ ABOUT THE STOCK MARKET BUBBLE

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

Very Worried

Please click here for a chart of  S&P 500 ETF () which represents the benchmark for the stock market index ().

Note the following:

  • The top banking regulator is ‘very worried’ about the stock market bubble in the U. S.
  • You may be thinking how could it be because the Fed is inflating the bubble and the Fed is the top banking regulator in the U. S.
  • Top regulators typically make a policy of not commenting on other countries.  Yet, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission has chosen to say that he is ‘very worried’ about the risks from the bubble in the United States and European stock markets.  He thinks the bubble will burst ‘sooner or later’ because the U. S. and European markets are heading in the opposite direction to their economies.
  • Guo’s comments caused stocks in Asia to slip.
  • Guo’s comments are also stopping the rally in the U. S. stock market in the early trade.
  • Prudent investors should control FOMO (fear of missing out) and pay attention to the Protection Bands and What To Do Now? below.  Right now this is the best way to participate in the upside of the stock market and protect yourself at the same time.

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.

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.

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 $1724, silver futures are at $26.34, and oil futures are $60.70.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.

DJIA futures are down 28 points.

BUYING ON SPECULATION THAT THE FED WILL PUSH BACK AGAINST INTEREST RATE RISE

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

Financials Breakout

Please click here for a chart of financial ETF ().

Note the following:

  • The chart is a monthly chart to give investors a  long term perspective.
  • Long time subscribers to The Arora Report may recall making a fortune by using inverse ETFs and short selling during the crash of 2008.  Inverse ETFs go up when the underlying stocks go down.
  • The chart shows that in the 2008 crash  lost 84% of its value.
  • The foregoing is instructive for investors now – the favorites of the momo crowd can easily lose 80 – 95% of their value.  For this reason, proper portfolio construction is very important.
  • The chart shows that finally after over a decade, financials are breaking out.
  • The breakout in financials does not mean you should rush out and buy financials.
  • RSI shown on the chart indicates financials are overbought. When a sector is overbought, it is vulnerable to a pullback.
  • Investors should patiently stick to the buy zones if following the Best Way and to Buy Now ratings to scale in if following the Good Way.
  • Financials have moved up and many of the favorites of the momo crowd have pulled back because interest rates have risen.
  • Now there is speculation that the Fed will push back on the interest rate rise. If the speculation turns out to be correct, momo stocks will rise again and financials will pull back.

Momo Crowd And Smart Money In Stocks

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

Gold

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

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

Oil

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

For longer-term, please see oil ratings.

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 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 $1734, silver futures are at $27.02, and oil futures are $62.02.

S&P 500 futures resistance levels are 3860, 3920 and 4000: support levels are 3800, 3630 and 3600.

DJIA futures are up 358 points.

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