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 What To Do Now.
STOCKS REBOUND ON STIMULUS HOPES
To gain an edge, this is what you need to know today.
Stimulus Hopes
After over 2000 Dow point down day, last night futures were down another 700 Dow points. At that time the stock market became extremely oversold. Oversold markets tend to bounce. The trigger for the bounce was Bank of Japan injecting more liquidity and People’s Bank of China lowering some interest rates.
Germany has just said that it will spend an unlimited amount of money to counter coronavirus. Yields on German 10-year bunds are on course for the biggest gain since 2015.
As of this writing, futures are up over 1100 Dow points.
Buy Zones
If today turns out to be an up day, we should have enough data to update most of the buy zones over the weekend for all Model Portfolios.
Momo Crowd And Smart Money In Stocks
The momo crowd is aggressively buying stocks in the early trade. Smart money is inactive.
Gold
Central bank selling in gold seems to continue. The momo crowd is acting like a yo-yo in gold. The Smart money is buying gold.
For longer term, please see gold and silver ratings.
Oil
The momo crowd is aggressively 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
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 positive but can quickly turn 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 stronger.
Gold futures are at $1593, silver futures are at $17.78, and oil futures are $32.75.
S&P 500 futures are halted.
DJIA futures are halted.
A CENTRAL BANK SELLS GOLD, A BIGGER WATERSHED MOMENT IS ON THE WAY IF STOCKS CANNOT HOLD THIS LEVEL
To gain an edge, this is what you need to know today.
Complacency
Coronavirus is spreading. As the stock market drops on coronavirus, popular sentiment indicators are showing fear. In quite a contrast, our proprietary indicators at The Arora Report are showing complacency among the stock market investors relative to the stock market drop that has already occurred. In plain English, this means that it is time to be very careful. Buying opportunities are developing but not ripe to buy with the exception of very small nibbles by those who meet the protection band criteria.
Last week I warned you that a watershed moment was on the way if the stocks could not hold a level that I had provided. The level has not held. A bigger watershed moment is on the way if the next level does not hold. Let’s explore with the help of two charts.
Two charts
Please click here for an annotated chart of the Dow Jones Industrial Average ETF (DIA) which tracks the Dow (DJIA).
Please click here for an annotated chart of S&P 500 ETF (SPY) which represents S&P 500 index (SPX). For the sake of complete transparency this chart was previously published and no changes have been made.
Note the following:
- The first chart shows the two support zones. The top support zone is marked ‘support zone’. The bottom support zone is marked ‘mother of support zones’.
- If the top support zone does not hold, a bigger watershed event is on its way.
- The chart shows Arora signal to buy inverse ETF (SQQQ) or short sell Nasdaq 100 ETF (QQQ) before the big drop in the stock market.
- The second chart shows the prior support zone that has been broken.
- The second chart shows the ‘program selling’ point where the selling accelerated. This program selling point and the second chart were provided well in advance before this leg of the stock market drop allowing investors plenty of time to protect themselves.
- The first chart shows that RSI is very oversold. This indicates that the slightest bit of good news can cause a rip roaring rally.
- The first chart shows the volume is still not high. This indicates complacency among investors. In more practical terms, it means that there is more downside to come perhaps after a rally that fails.
If you followed along
If you followed along, your long term portfolios were up to 57% protected when the stock market was near the all-time new highs. The protection has been steadily increased in steps and your long term portfolios were up to 79% protected prior to the current drop in the stock market. We will continue to review these protection levels and make tactical adjustments of increasing or decreasing protection based on the data and proven algorithms.
If you did not follow along
Here are some helpful pointers if you did not follow along and are invested more than the protection bands appropriate for these stock market conditions.
- Do not panic.
- Develop a plan. Hope is not a good strategy. The best way to develop a plan is to start out by attending the Bullet Proof Your Portfolio seminar. We have complied to your requests and are offering a special discount at this time to help you.
- Bear markets have some of the sharpest rallies.
- Use the rallies to build protection.
- There is potential for good news in many ways.
- Start with Arora’s Third Law of Investing and Trading: Making investing and trading decisions based on probabilities is the only realistic and profitable approach.
- The support zone shown on the first chart has about a 30% probability of holding.
- The mother of support zones shown on the first chart has 80% probability of holding.
Popular stocks
At The Arora Report we are receiving questions on popular stocks. Here are the brief answers:
- Apple (AAPL) is not likely to see lasting damage in the developed world but may see lasting damage in the developing world. In the developed world, iPhone sales will only be deferred and not lost. In the developing world some iPhone sales will be lost forever.
- Facebook (FB) and Alphabet (GOOG) (GOOGL) will lose some advertising revenues but will benefit by higher use of their services.
- Amazon (AMZN) will benefit from more deliveries to the home. However, investors should work out the numbers based on a scenario of coronavirus spreading to Amazon warehouses and Amazon not being able to deliver.
- Tesla (TSLA) may be negatively affected by lower oil prices.
- Intel (INTC), AMD (AMD) and Microsoft (MSFT) will see sales deferred but not lost.
Should you buy or sell
Please see prior posts.
PPI
Core PPI came at -0.3% vs. +0.1% consensus.
Jobless Claims
Jobless Claims came at 211K vs. 217K consensus.
Momo Crowd And Smart Money In Stocks
The momo crowd is extremely aggressively selling stocks. Smart money is inactive.
Gold
Central banks do not announce when they are selling gold. It is a matter of inference and not a fact.
It appears that some central banks are selling gold. For example Russia had accumulated a lot of gold. Now to finance their oil war with Saudi Arabia, Russia could be selling gold to raise reserves.
The momo crowd is extremely aggressively selling gold. The Smart money is buying gold.
For longer term, please see gold and silver ratings.
Oil
The momo crowd is extremely 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
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 but can quickly reverse on the slightest good news leading to a very sharp rally. 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 $1610, silver futures are at $16.05, and oil futures are $30.76.
S&P 500 futures are halted.
DJIA futures are halted.
HERE IS AN ANTIDOTE TO STOCK MARKET’S CORONAVIRUS TROUBLES
To gain an edge, this is what you need to know today.
A Potential Antidote
Coronavirus spread is beyond the stage of containment and now the focus is shifting on mitigation. Stock market investors, especially those who steadfastly believed that coronavirus was not a big deal and over leveraged themselves by buying on a 2% dip and then on a 5% dip and so on, are in trouble. Even buy and hold investors who blindly send their money to the funds and do not believe in steering their investments are having second thoughts.
The race is on to find a vaccine for coronavirus. Is there an antidote for investors’ stock market troubles? Let’s explore with the help of two charts.
Two Charts
Please click here for a long-term monthly chart of the Dow Jones Industrial Average ETF (DIA), which tracks the Dow (DJIA). For the sake of transparency, this chart was previously published, and no changes have been made.
Please click here for a long term monthly chart of gold ETF (GLD).
Note the following:
- You do not need any special expertise to make a very simple observation from the two charts.
- The first chart showing the stock market shows a potential topping pattern.
- The second chart representing gold shows a potential bottoming pattern.
- Consider comparing the second chart to charts of your favorite stocks such as Apple (AAPL), Amazon (AMZN) or AMD (AMD). You will reach the conclusion that these popular stocks have a topping pattern.
- The second chart shows that the volume in gold ETF GLD is not high. In traditional technical analysis, this is considered negative. However in my view based on my over 30 years of experience, this is a positive. The reason is the low volume shows that gold has not yet gotten the attention of stock market investors and is under owned. If gold was to catch the attention of stock market investors, there is a long runway ahead.
- If gold catches stock market investors’ attention, there is potential of a repeat of what happened in 2007.
- In 2007, when the Arora buy signal was given to back up the truck and buy gold, as shown on the chart, nothing happened for a few months.
- A few months after Arora signal to back up the truck and buy gold, gold took off. Investors more than tripled their money.
- Many investors are familiar with my long track record. Those who are new, before sending me hate mail accusing me of being a gold bug, take another look at the second chart. I gave a sell signal to sell half of gold at $1,904 at a time when the near universal calls were to buy gold. Fortuitously, the signal to sell gold was given in the early morning of the day when gold topped a few hours later before a major pullback.
When and how to buy gold
Investors ought to bring some sophistication to their investing. The second chart shows the resistance zone and RSI divergence. I will be discussing more in a future column.
As a caution, do not just rush out to buy gold, silver ETF (SLV) or gold miner ETF (GDX). Gold can be treacherous for the uninitiated.
CPI
Core CPI came at 0.2% vs. 0.1% consensus.
Momo Crowd And Smart Money In Stocks
The momo crowd is aggressively 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 aggressively buying 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 but can quickly swing positive on stimulus news or rumors. 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 $1665, silver futures are at $16.93, and oil futures are $32.98.
S&P 500 resistance levels are 2800, 2864 and 2888; support levels are 2765, 2740 and 2696.
DJIA futures are down 703 points.
INVESTORS TRUST TRUMP’S TWO ‘MAGIC WORDS’ TO RUN UP THE STOCK MARKET – TIME TO NIBBLE
To gain an edge, this is what you need to know today.
Time to nibble
It is time to selectively nibble but only if you meet the protection band criteria. For your protection bands please scroll down to ‘Protection Bands and What To Do Now?’ section.
Two Magic Words
Trump has moved the stock market up with two magic words – “Very dramatic” steps that Trump wants to take.
Investing and trading is about making money and you should never let your political opinions get in the way. Irrespective of what you think of Trump, Wall Street trusts him. Let’s explore with the help of two charts.
Two Chart
Please click here for an annotated chart of Dow Jones Industrial Average (DJIA) futures.
Please click here for chart of S&P 500 ETF (SPY) which tracks S&P 500 index (SPX). For the sake of transparency this chart was previously published and no changes have been made.
Note the following:
- The first chart shows a 1300 Dow point up move in the stock market futures as Trump uttered two magic words. In a news conference Trump said that he will announce “very dramatic” actions to support the economy.
- With his two magic words, Trump quickly erased the fears that had led to a 2000 Dow point drop in the stock market. Are investors gullible?
- The second chart shows major support levels in the stock market. Technically, since the first major support level was not decisively violated, it was natural for the stock market to bounce.
- Our call was to take at least partial profits in the short term trade on Nasdaq 100 ETF (QQQ) short position and adjust stops to protect profits. A short position generates profits when the market goes down.
- Long term investments should be handled differently from short term trades.
Good News
When the stock market was falling 2000 Dow points, fear mongering was rampant and few were looking ahead to the potential good news, I wrote, “It seems dark but there is potential good news on the horizon that can reverse the stock market.” I identified several potential pieces of good news. Among the potential good news I identified, the following are coming true now.
- Massive fiscal response from governments. In the U. S., the response includes payroll tax cuts and paid sick leave for hourly workers.
- There is data showing that coronavirus has potentially peaked in China.
- There is data showing that coronavirus has potentially peaked in South Korea.
It is important for investors to not think in binary terms – it’s all good or it’s all bad.
Clues
I had previously identified several clues for a potential reversal. All of those clues are working.
- 10-year Treasury bond yield has reversed.
- Apple (AAPL) is opening 38 of its China stores.
- It appears that Facebook (FB) and Alphabet (GOOG) (GOOGL) are not seeing any drop in advertising.
- New money appears to be flowing in stocks of Amazon (AMZN) and Microsoft (MSFT).
- Semiconductor stocks have been the leading indicators. Money is flowing into Micron (MU) and AMD (AMD).
- Gold ETF (GLD) and silver ETF (SLV) are showing money outflows.
- Selling is coming into coronavirus stocks such as Gilead Sciences (GILD), Moderna (MRNA) and Inovio Pharmaceuticals (INO).
Momo Crowd And Smart Money In Stocks
The momo crowd is aggressively buying stocks. Smart money is lightly and selectively selling into the strength.
Gold
The momo crowd is aggressively selling gold. Smart money is inactive.
For longer term, please see gold and silver ratings.
Oil
The momo crowd is aggressively buying oil. Smart money is inactive.
For longer term, please see oil ratings.
Marijuana
The momo crowd is aggressively buying marijuana stocks. Smart money is inactive.
Technical Patterns
Semiconductors are tracing a gravestone pattern. This is bullish. ETF of interest is SMH. Note that this trade will work only if the overall market does not tank.
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 but can quickly swing 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 stronger.
Gold futures are at $1664, silver futures are at $17.06, and oil futures are $33.60.
S&P 500 resistance levels are 2864, 2888 and 2900; support levels are 2800, 2765 and 2740.
DJIA futures are up 773 points.
THE ANSWER TO THE QUESTION AFTER CORONAVIRUS AND OIL CRASH – SHOULD I BUY OR SHOULD I SELL?
To gain an edge, this is what you need to know today.
Oil Crash
All signs were there for coronavirus spread to move from the phase of containment to mitigation. The surprise has been Russia declaring war on American shale producers by not going along with OPEC for production cuts. A bigger surprise has been Saudi Arabia declaring war on Russia by increasing production and giving massive discounts on oil to hurt Russia immediately.
Lost in the foregoing news is another big news: Yes Bank, one of the largest private banks in India has failed. Bank is in the U. S. are generally in good shape, but expect more bank failures overseas. Even some smaller U. S. banks highly exposed to oil and gas may come under stress.
I am paraphrasing the question I am being asked most often, “should I buy or should I sell?” To answer the question, let’s first build the necessary background with the help of two charts.
Two chart
Please click here for a daily chart of S&P 500 ETF (SPY) that represents S&P 500 index (SPX). Even though many investors’ portfolios resemble Nasdaq 100 ETF (QQQ), it is better to use a chart of S&P 500 ETF SPY for the purpose of determining how low this stock market can go.
Please click here for a long-term monthly chart of the Dow Jones Industrial Average ETF (DIA), which tracks the Dow (DJIA). For the sake of transparency, this chart was previously published, and no changes have been made.
Note the following:
- The first chart is an updated version of a chart that was previously published.
- The first chart shows that the stock market gapped down after the ‘programmed selling’ point shown on the chart was violated in futures trading.
- The first chart shows that as of this writing, the lower band of the upper support zone shown on the chart has not been decisively broken.
- A proprietary indicator that has served The Arora Report well over the years is the ‘hate mail indicator’. The indicator is derived from the hate messages I get in response to my writings. This indicator shows that there is still too much complacency among investors. Recently when I wrote to put protections on rallies, I got a lot of hate mail. When I wrote that No. 1 mistake investors were making was buying because the market was down a certain percentage such as 5%, I got a lot of hate mail. The amount of the hate mail has been higher compared to when I wrote back in January that an external event could stunt U. S. stocks at a time when coronavirus news was just beginning to surface and the stock market was hitting new highs. The sum total is that at this time investors are buying more than what is justifiable based on both technicals and fundamentals. Investors are still over invested. This behavior may lead to a short term rally but such rally may not be sustainable.
- The first chart shows that Arora long term portfolios were up to 57% protected near the top of the market and before the fall last week on Friday, they were up to 72% protected.
- The chart shows Arora signals to buy inverse leveraged Nasdaq 100 ETF (SQQQ) or short sell Nasdaq 100 ETF (QQQ) for a short term trade near the top of the market.
- The first chart shows the second major support zone. Unless there is good news, and yes there can be good news, there is a fair probability of the stock market falling to the second major support zone shown on the chart.
- The first chart shows how far the stock market has come since the Arora buy signal given in 2009 to aggressively buy stocks, which has turned out to be the start of the bull market.
- The first chart shows gently up trending trendline until Trump’s election. There is a risk of the stock market ultimately pulling back to this trendline.
Good news
It seems dark but there is potential good news on the horizon that can reverse the stock market.
- If the data starts showing conclusively that coronavirus has peaked in China.
- If the data starts showing that coronavirus has peaked in South Korea and Italy.
- One or more antivirals are shown to decrease the intensity of coronavirus.
- If drugs and treatments are developed that prevent coronavirus from severely affecting the lower respiratory system.
- A new round of QE from the Fed.
- More interest rate cuts from the Fed.
- More money printing by other central banks.
- A massive fiscal response from the governments.
Some of the steps such as money printing are not good in the long term but may help in the short term.
To buy or sell
Markets are complex. It is simply foolish to be looking for simple answers that in reality do not exist. The Arora Report provides a range for the amount of protection based on the current market conditions. This amount of protection is reviewed daily and sometimes intraday. 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. Currently the high band of the protection is at 72% and the low band is at 40%.
First you have to decide where you fall in the protection band based on your own personal situation and preferences. If your protection is less than the recommended, consider scaling out on stock market rallies. If your protection is more than the recommended, consider scaling in on bad stock market days.
Momo Crowd And Smart Money In Stocks
The momo crowd was aggressively selling stocks. As of this writing, they have reversed and are now buying stocks.
Smart money is inactive.
We share with you in Morning Capsules that the smart money was selling near the top.
Gold
The momo crowd is acting like a yo-yo. 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 aggressively 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 $1677, silver futures are at $16.83, and oil futures are $32.58.
S&P 500 resistance levels are 2864, 2888and 2900; support levels are 2800, 2765 and 2740.
DJIA futures are down 1255 points.
WHAT TO DO NOW
Looking ahead and not only in the rear view mirror, consider continuing to hold existing core portfolio positions. Based on individual risk preference, consider holding cash or treasury bills 29% – 39% and short to medium-term hedges of 3% – 15% and short term hedges of 8% – 20%.
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