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

Bit Chompers

The U. S. has become the country with most coronavirus cases. I have been writing that some of the sharpest rallies, often 20%, occur in bear markets. Short squeezes and fund rebalancing are the common reasons. This time, the rally that has technically generated a bull market, seems to be led by ‘bit chompers’ – something I have not seen before in my over 30 years in the markets. I am a veteran of the 1987 stock market crash, 2000 technology stock crash and 2008 bear stock market.

I became aware of coronavirus in November. By December, at The Arora Report, we were taking into account potential negative effects of coronavirus on the stock market in our models. I refrained from writing about it until January because I did not want to create panic due to my large following. As I was warning about coronavirus and its impact on the stock market, the momo crowd was dismissive of the coronavirus as just the flu and running the stock market up day after day. We gave signals to protect portfolios – up 57% protection at the stock market peak and quickly raised up to 86%.

Who are the bit chompers? The anecdotal evidence is that these are the same investors who were leveraged to the hilt and aggressively buying leading the stock market index S&P 500 (SPX) to a new high on February 19, 2020. When the market fell, these investors suffered massive losses. Perhaps they felt they had no choice but to aggressively buy on this dip to make up for their losses. No wonder they were chomping at the bit to buy. Should you follow the bit chompers? Let’s explore with the help of three charts.

Three Charts

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

Please click here for an annotated chart of volatility ETF (VXX) that represents (VIX) – the fear gage of Wall Street.

Please click here for an annotated chart of food service company Sysco (SYY).

Note the following:

• The first chart is a monthly chart of the stock market to give you a long term perspective.
• As the first chart shows, the strong rally in the stock market has caused Dow Jones Industrial Average to break the support/resistance zone to the upside. From a technical perspective this is very positive for the stock market.
• The plan is to look for Dow Jones Industrial Average to stay above the resistance zone shown on the first chart.
• The second chart shows that even though the stock market has rallied strongly, volatility index ETF VXX has not fallen.
• In theory, VXX should have fallen as the stock market rose. There is a technical explanation that the volatility index VIX has not fallen because of the volatility in the stock market to the upside.
• You cannot trade volatility index VIX but you can trade volatility ETF VXX.
• My long experience with VXX shows that theory aside, the real reason VXX is not going down is because prudent investors are buying protection for their stock portfolios and not selling protection.
• The third chart shows a very simple but powerful technique to make money from short term moves in this stock market that is easy to use.
• The third chart shows Arora buy zone of $25 to $28.31 in food service company Sysco published on March 15, 2020 as one the 16 stocks in our Coronavirus Portfolio. The stock dipped in the buy zone on March 18^th and then skyrocketed. The gains have been substantial in a matter of days – 50% on Sysco, 117% on casino company Penn National Gaming (PENN), 84% on senior housing stock Ventas (VTR) and 64 % on oil service company Halliburton (HAL). Note from the list of these four stocks that they are in different sectors for diversification reasons and all are substantially negatively affected by the coronavirus. When executing this strategy diversification is extremely important. The strategy is similar to the January Effect strategy that we have consistently used year after year to make about 30% returns in three months.
• In addition to the popular stocks such as Amazon (AMZN), Apple (AAPL) and AMD (AMD), bit chompers are aggressively buying cruise line stocks such as Royal Caribbean (RCL) and Carnival (CCL) as well as airlines such as American Airlines (AAL) and Delta Air Lines (DAL).

Potential Good News

I have previously written that there is potential good news ahead in the form of an antiviral drug that works. Here is a chart showing chloroquine success in a small study, the drug that Trump has touted. There is also a Chinese study that show the drug does not work.

At The Arora Report, our team including a person with doctorate from Harvard Medical School has been diligently looking for investments related to coronavirus cure. So far we have not found anything real promising. Perhaps the bit chompers know of a potential cure as that would be a good reason to chomp at the bit to aggressively buy.

Momo Crowd And Smart Money In Stocks

The momo crowd is acting like a yo-yo  in the early trade.  Smart money sold into the strength at the close yesterday but is inactive this morning.

Gold

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

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 aggressively buying marijuana stocks. Smart money is beginning to lightly sell into the strength.

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 $1629, silver futures are at $14.56, and oil futures are $21.71.

S&P 500 futures resistance levels is 2600: support levels are  2463, 2417 and  2380.

DJIA futures are down 778 points

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

Jobless Claims

Initial jobless claims soared to 3.283 million shattering the past record. My long time readers know that initial jobless claims carry a heavy weight in our ZYX Asset Allocation Model. The reason is that this is a leading indicator and we get it weekly. However this time, the devastating number is already discounted in the stock market. Consider ignoring it just this time and instead focus on the secret of the rich in the stock market.

Those ‘Not In-The-Know’ Getting Burned

The rich who are successful and active in the stock market have an important secret that everybody can easily understand. Most investment advisors and money manager know the secret but many have difficulty putting it into practice. Of course, those ‘not in-the-know’ are getting burned in this coronavirus stock market.

There is a good reason for all investors in the stock market to understand this secret and practice it to their advantage. Let’s first build the background with the help of a chart.

The Chart

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

Note the following:

• The chart is a monthly chart to give a longer term perspective.
• The chart shows Arora call on January 22, 2020 and subsequently repeated that an external event such as the virus from China could hurt stocks.
• The Arora Report was bringing attention to the virus and a potential drop in the stock market at a time when hardly anyone was talking about a big drop in the stock market due to the virus. At that time the stock market was making news highs.
• After the Arora call about the virus, as the stock market buying frenzy continued, I wrote on January 30, 2020 that coronavirus scare had driven dangerous greed and arrogance in the stock market.
• In response to both writings mentioned above, I received a ton of hate mail accusing me of trying to stop investors from making money; these investors were imposing their need to make money on the stock market. The stock market continued to rise and S&P 500 (SPX) made a new high on February 19.
• The chart shows several Arora calls that dips were not buying opportunities.
• The chart shows Arora buy signal in March 2009 to aggressively buy. Again the signal was met with hate mail. At that time, almost everyone was giving sell signals. Some investors called my aggressive buy signal ‘lunacy’. In hindsight, that buy signal turned out to be the start of a long bull market.
• During the coronavirus fall in the stock market, many investors have been badly burned by buying prematurely because they were imposing their will on the stock market. They were making a big mistake by using the artificial construct of percentages to buy because the stock market had fallen by 3% or 5%. I have previously written about it several times.
• The chart shows the support/resistance zone and ‘mother of support zones’. For details regarding the support zones please see prior Morning Capsules.
• The Arora Report call has been that the rally in the stock market had 65% probability of eventually failing. Please see prior Morning Capsules.

True Nature Of The Stock Market

The rich who are successful and active in the stock market understand the true nature of the markets. Making money in the markets is quite different from most other endeavors in life. If you decide you want to go to Starbucks to get a cup of coffee right now and there are no coronavirus restrictions, it is perfectly fine to do so. To the contrary when the timing is not right, if you decide that you want to buy a certain stock now or put a certain sum in markets now irrespective of the risks, you will most likely lose money over the long-term. Markets are not your slaves; to be successful you must not enter positions at your will or desire, but only when the markets give you the opportunities. There are times when there are not many opportunities and there are times when opportunities are abundant. To be successful, you have to be patient and disciplined.

The Secret

The secret is not imposing your will, your needs, and your emotion on the market – doing so leads to losses. It is worth repeating – the stock market is not our slave. Rich successful investors listen to the message of the market and then act based on what the market is telling them

The secret is summed up in Arora’s First Law of Investing and Trading: To be successful at investing and trading, think differently from most other endeavors in life.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively buying stocks as of this writing. Earlier in the morning the momo crowd was aggressively selling stocks.

Smart money sold at the highs yesterday and kept on selling going into the close.  Smart money is inactive as of this writing.

Gold

Large jobless claims are good for gold.  The momo crowd is aggressively buying gold.  Smart money is inactive in 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

Demand for marijuana is surging.

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

Technical Patterns

Indonesian stocks are tracing an island bottom.  This is bullish.  ETF of interest is EIDO.

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 can swing either way.  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 weaker.

Gold futures are at $1661, silver futures are at $14.82, and oil futures are $23.70.

S&P 500 futures resistance levels are 2463, 2520 and 2600: support levels are 2417, 2380 and 2320.

DJIA futures are up 83 points.

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

Massive Deal 

Trump and the Senate have reached a massive stimulus deal. This deal combined with the Fed package amounts to about $6 trillion. Stock market investors are cheering and not many are talking about the long term impact.  The long term impact is very negative for investors.  We have previously written in detail about it.

The Deal Already Discounted 

On the news of the deal, futures ran up 700 Dow points. As of this writing futures have already given up most of these gains.  Expect less sophisticated late comers to buy on the news this morning. If such buying triggers a short squeeze, expect more gains. On the other hand if a short squeeze is not triggered, after an initial up spike, expect the market to give up some of the recent gains.

Segmented Money Flows

Segmented money flows are like an X-ray.  Just like a doctor uses an X-ray to see what is going on below the surface, prudent investors can do the same with their investments. This is the reason we publish daily in the Morning Capsule segmented money flows in stocks, gold and oil. When appropriate, we also update you in the Afternoon Capsule.

Tech stocks are showing leadership.  For this reason it makes sense to take a close look at segmented money flows in 11 popular tech stocks.  A new post on 11 popular tech stocks will shortly  be published as is customary in ZYX Buy and ZYX Short. This time due to the heavy interest in this information, the post will also be republished in ZYX Global and ZYX Emerging.

Durable Goods

Durable Goods Ex-transportation came at -0.6% vs. -0.2% consensus.  We leave out transport because they are very volatile and hinder predictions.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively buying stocks in the early trade.  Smart money is lightly selling stocks. Please note that smart money is selectively buying tech stocks. Please see the money flow post.

Gold

The momo crowd is acting like a yo-yo in gold.  Smart money is inactive.  You may recall that smart money was buying gold when gold was hit recently due to margin calls.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is acting  like a yo-yo in 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

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 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  weaker.

Gold futures are at $1641, silver futures are at $14.37, and oil futures are $23.41.

S&P 500 futures resistance levels are 2463, 2520 and 2600: support levels are 2417, 2380 and 2320.

DJIA futures are up 159 points

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

Reduce Hedges

Please see ‘Protection Bands and What To Do Now’ section below.

Drop In Fear Tradable Rally

As coronavirus spreads and investors grapple with ‘buy’ and ‘sell’ decisions about their portfolios, there are two new developments that should help guide investors’ decisions regarding the stock market. Let’s explore with the help of two charts.

Two charts

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

Please click here for a chart of volatility ETF (VXX) that represents volatility index (VIX) in the benchmark S&P 500 (SPX).

Note the following:

• The first chart shows that The Arora Report gave a signal to buy leveraged inverse ETF (SQQQ) or short sell Nasdaq 100 ETF (QQQ) that represent Nasdaq 100 index (NDX) right near the top of the stock market. An inverse ETF goes up when the stock market goes down.
• The first chart shows that now Arora Report has given a signal to book profits and exit leveraged inverse ETF SQQQ or the short Nasdaq 100 ETF QQQ positions.
• The Arora Report is tactically reducing hedges.
• The first chart shows the stock market touched the top band of the ‘mother of support zones’ and has now bounced. This is often the case for short term tradable bottoms.
• The first chart shows that the volume has gone higher but is still not high enough considering the carnage in the stock market. This indicates that a capitulation has not yet occurred. A capitulation is often necessary for a lasting bottom.
• Without capitulation first, rallies tend to fail.
• The second chart shows a dramatic drop in VXX. This indicates that investors are nowhere as fearful as they were before. This is often considered a short term buy signal for the stock market.

The reason behind the new found bullishness

It is no secret that Wall Street loves Trump. Trump wants to get re-elected. Trump has made the stock market a measure of his success.

Trump has started making noises that he wants to lift the coronavirus restriction. It is understandable. Who wants to be confined to their home? It is not the coronavirus but response of the country to the coronavirus that is doing the damage to the economy and the stock market. The rich are still comfortable but ordinary investors with 401(k)s are suffering. Working class people and small businesses are in trouble.

Based on the foregoing, is there any reason at all to lift the restrictions and keep the economy going? Many health experts think that it is dangerous and premature to lift the restrictions. Here are the reasons health experts give:

• The community spread chain is not yet broken.
• Easy wide-spread testing is still not available.
• There is simply not enough data available to make such an important decision.

Those with an eye on moving the stock market higher counter that the cure is worse than the disease. They are floating the idea of letting younger workers go back to work while restricting older workers. The health experts counter by saying it is a myth that only older people get serious illness. Further those younger people who get sick may spend a couple of weeks in the ICU and have lasting damage.

Who is responsible and who is irresponsible? I will let you decide.

Heavy buying

I have often written that investors ought to watch semiconductors because they have been the leading indicators. As of this writing, heavy buying is occurring in stocks such as Intel (INTC), AMD (AMD) and Micron (MU).

It is also important to watch mega-cap tech stocks. The heaviest buying is occurring in Amazon (AMZN) and Microsoft (MSFT). Buying in Apple (AAPL), Facebook (FB) and Alphabet (GOOG) (GOOGL) is not as strong. The inference from the difference between these buying patterns is that the rally is suspect.

There is also heavy buying is three cruise line stocks Royal Caribbean (RCL), Carnival (CCL) and Norwegian Cruise Line (NCLH).

Nibbling

It is time to nibble stocks and ETFs that are in the buy zones provided you meet the protection criteria with the understanding that the probability is about 65% that the rally will fail.

Momo Crowd And Smart Money In Stocks

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

Gold

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

Gold futures are at $1672, silver futures are at $14.11, and oil futures are $24.31.

S&P 500 futures resistance levels are 2380, 2417 and 2463: support levels are 2320, 2278 and 2260.

DJIA futures are up 930 points

STOCK MARKET ‘MOTHER OF SUPPORT ZONES’ BETTER HOLD — POTENTIAL GOOD NEWS AHEAD