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

Increase Protection

We have previously explained the difference between strategic and tactical calls.  This is a tactical call.  The tactical call now is to increase protection with cash and hedges.  Please scroll down to ‘What To Do Now’ section.

Strong Jobs Report

Non-farm Private Payrolls came at 273K vs. 170K consensus.  The strong jobs report has stemmed the selling in stocks and buying is coming in.  It does make sense. However keep in mind that buying on this report is looking in the rear view mirror.  If the report was not as strong, DJIA futures could have easily fallen more than 1500 points but due to the buying on the report the futures are down only about 850 points.

How Low

As the coronavirus spreads, the question I am being most often asked is how low can this stock market go. Let’s examine 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 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.

Note the following:

• Start out by carefully studying the first chart for a long term perspective.
• The second chart shows the point at which a significant amount of preprogrammed selling by the machines may occur.
• There are likely many stops below the point marked ‘programmed selling’ on the chart. If the stock market dips below this point, the selling may accelerate as stops get taken out.
• If the historical patterns hold true and there is no new unexpected news on coronavirus, after the stops are taken out, the stock market may rally.
• Any programmed selling should be contained to the top major support zone shown on the first chart.
• The programmed selling point shown on the first chart is the top band of the support zone shown on the chart.
• If the market rallies from there, bulls would say that there was a successful retest. A successful retest will mean time to buy but only for short term trades.
• If the bottom band of the top support zone is broken, that will likely be a watershed moment.
• If the watershed moment occurs the next major support zone is shown on the chart.
• The bottom band of the lower support zone band is where Arora buy signal was given on Christmas Eve of 2018 which turned out to be a great buying opportunity and the bottom of the dip.

Arora Buy Signal

Those who have been my long time readers already know the successful track record of giving many buy signals at or near exact lows including a major aggressive buy signal to aggressive buy in March of 2009 which turned out to be the start of this long bull market. Many are asking the same question; I am paraphrasing, “the stock market has fallen, why isn’t The Arora Report giving a buy signal?”  Just because the stock market has dipped, does not mean it is an automatic buy. Markets are very complex. Investors are suffering from the recency bias. Due to the long bull market, a simple approach of buying every dip has worked in the past. Past is still likely a prologue to the future but extra caution needs to be warranted. The extra caution is not just due to coronavirus. It is primarily due to the length of this bull market. Trees do not grow to the sky.

It is high time for investors to bring some sophistication to their investments other than just either sending the money to the funds or just buying when the market dips.

Hope Is Not a Strategy

Investors who are still stubbornly refusing to bring sophistication to their investing are clinging to the hope that the next 10 years in the stock market will be the same as the last 10 years are depending on hope and luck.

Hope is not a good strategy.

What Does It All Mean?

Here are a few things investors can do.

• Before the fall in the stock market, long term portfolios at The Arora Report were up to 57% protected. Since then, we have increased protection. Investors ought to review their protection levels on a daily basis during these volatile times.
• Protection should be based on a strict proven framework and not just done willy-nilly.
• All investors should watch the big five stocks. It is important to not watch one or two but all five because they have different characteristics and provide important clues. The big five are Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG) (GOOGL) and Facebook (FB).
• Semiconductor stocks have been the leaders but they have fallen less relative to their beta during the rise. Just take a look at three charts of Intel (INTC), Micron (MU) and NVIDIA (NVDA). A study of these four charts will show that there is still more complacency among investors than is justifiable by the price action.
• AMD has laid out a very strong road map and given targets for rapid growth to 2023. Carefully watch how AMD stock behaves.
• Watch gold ETF (GLD), silver ETF (SLV) and gold miner ETF (GDX).

Consider opportunistically doing short term trades.

Momo Crowd And Smart Money In Stocks

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

Gold

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

For longer term, please see gold and silver ratings.

Oil

There are reports that Russia may not join OPEC in production cuts.  If true, this is very bearish for 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 $1687, silver futures are at $17.48, and oil futures are $43.99.

S&P 500 resistance levels are  2983, 3026 and 3050; support levels are 2900, 2888 and 2864.

DJIA futures are down 850 points.

What To Do Now?

It is important for investors to look ahead and not in the rear view mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding cash or treasury bills 27% – 37% and short to medium-term hedges of  3% – 15% and short term hedges of  10% – 20%. This is a good way to protect yourself and participate in the upside at the same time.

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.

Individual Trades

Please click on Home on the left side of the Menu.  Scroll down on the Home Page for individual trades.

Click on the Search by Symbol/Tag on the right hand side and click on the symbols of interest.

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

Short Squeeze Give Back

About half of yesterday’s Biden rally was due to short squeeze.  This morning the market is giving up that short squeeze.

Wild Swings

I am seeing a large number of complaints about the stock market’s wild swings as coronavirus spreads. My suggestion is to not complain about the wild swings. The reason is that there is nothing you can do to stop the swings. Investors ought to accept the swings, focus on making money from the stock market wild swings with short term trades and protecting their long term portfolios.

Wild swings are an indication of top or a bottom in the stock market. Which one is it? Here is how to decide with the help of two charts.

Two chart

Please click here for a long-term 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 an annotated short term chart of Nasdaq 100 ETF (QQQ).

Note the following:

• I chose the chart of Nasdaq 100 ETF QQQ instead of a chart of S&P 500 ETF (SPY) that represents S&P 500 index (SPX). Most money is tied to S&P 500 and not to Nasdaq 100 or Dow Jones Industrial Average. However, it seems that most investors’ portfolios are concentrated in five mega-cap stocks. These five stocks are Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG) (GOOGL) and Facebook (FB). Nasdaq 100 ETF has heavier weightings of these five stocks compared to S&P 500. For example, Apple has a weighting of 4.85% in S&P 500 but a weighting of 11.67% in Nasdaq 100.
• The second chart shows six wild stock market swings that have recently happened.
• The first chart shows that the stock market is still levitating above the long term trendline. The starting point of the long term trendline is the Arora buy signal given in 2009 to aggressively buy which has turned out to be the start of the bull market.
• The stock market was gently trending slightly above the trendline until Trump’s election. At the time of Trump election, most analysts were predicting a big selloff in the stock market. At that time The Arora Report issued a buy signal followed by several calls for Dow 30,000. The stock market took off and deviated from the long term trendline. This point is shown in the middle of the first chart.
• The first chart shows that RSI is not yet oversold on a monthly basis.
• The white horizontal line shown on the chart in the RSI pane represents the oversold level.
• Note from the first chart how oversold RSI got at the start of this bull market.
• On a fundamental basis, the stock market is overvalued compared to its own historical valuations.
• On a fundamental basis, the stock market is significantly undervalued when compared to 1% yield on 10-year Treasury bonds.
• Semiconductor stocks have been the leading indicators. Of special interest is that semiconductor stocks such as AMD (AMD) and Micron (MU) as well as semiconductor equipment manufacturers such as Applied Materials (AMAT) and Lam Research (LRCX) have seen less wild swings when compared to their own history relative to Nasdaq 100.

What does it all mean?

Start with Arora’s Second Law of Investing and Trading: Nobody knows with certainty what is going to happen next in the markets. Arora’s second law is especially applicable to these stock market conditions because not enough is known about coronavirus at this time. Here are the key points:

• Based on the foregoing, if it was not for Fed’s money printing, I could confidently say that the stock market top is in and the prior high will not be seen in a long time. However think about 1% yield on 10-year Treasury bonds. That is equivalent to a PE of 100. In comparison, a PE of 20 for the stock market is relatively inexpensive and perhaps even a bargain. Moreover the Fed seems to be on track to cut interest rates further and print more money. Such moves will make stocks even more attractive.
• Refrain from thinking there are only two outcomes – stocks are going to go straight up or they are going to crash. In the emails I get, a vast majority of investors are convinced that they need to go all in buying stocks now or they want to sell all of their stock now.
• We provide specific levels of cash and hedges to protect long term portfolios and short term trades to take advantage of the wild swings. Investors’ focus should shift to how they can make money irrespective of what happens.
• To be able to make money under all market conditions, investors may want to pay attention to Arora’s Third Law of Investing and Trading: Making investing and trading decisions based on probabilities is the only realistic and profitable approach.

Momo Crowd And Smart Money In Stocks

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

Gold

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

For longer term, please see gold and silver ratings.

Oil

OPEC has reached an agreement to cut 1.5 million barrels from production.  In theory this should be bullish for oil, but oil is being sold because Russia has not gone along with the cut.

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

For longer term, please see oil ratings.

Marijuana

A Wall Street analyst is calling for TLRY to go to zero.

CGC is shutting down half of its capacity in Canada and taking a big write-off.

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 but can quickly swing positive.  Expect the market to open about 600 Dow points 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 $1657, silver futures are at $17.30, and oil futures are $46.86.

S&P 500 resistance levels are  3050, 3100, and 3150; support levels are 3026, 2983 and 2910.

DJIA futures are down 626 points.

What To Do Now?

It is important for investors to look ahead and not in the rear view mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding cash or treasury bills 24% – 34% and short to medium-term hedges of  0% – 15% and short term hedges of  5% – 10%. This is a good way to protect yourself and participate in the upside at the same time.

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.

Individual Trades

Please click on Home on the left side of the Menu.  Scroll down on the Home Page for individual trades.

Click on the Search by Symbol/Tag on the right hand side and click on the symbols of interest.

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

Optimism

Unexpectedly strong performance from Biden in yesterday’s primaries is generating optimism in the stock market.  For the time being, investors are celebrating Biden wins and forgetting about coronavirus.  Let us see  how long it lasts.

ADP Data

ADP is the largest payroll processor.  It uses its data to give a glimpse of the employment picture ahead of the official numbers that will be released on Friday.  ADP employment change came at 183K vs. 160K consensus.

Momo Crowd And Smart Money In Stocks

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

Gold

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

For longer term, please see gold and silver ratings.

Oil

API came at a build of 1.7M barrels vs. consensus of 3.3M barrels.

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 neutral  but can swing either way.  Expect the market to open about 600 Dow points 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 and bonds are range bound.

The dollar is stronger.

Gold futures are at $1641, silver futures are at $17.16, and oil futures are $48.24.

S&P 500 resistance levels are  3100, 3150 and 3220; support levels are 3050, 3026 and 2983.

DJIA futures are up 603 points.

What To Do Now?

It is important for investors to look ahead and not in the rear view mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding cash or treasury bills 24% – 34% and short to medium-term hedges of  0% – 15% and short term hedges of  5% – 10%. This is a good way to protect yourself and participate in the upside at the same time.

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.

Individual Trades

Please click on Home on the left side of the Menu.  Scroll down on the Home Page for individual trades.

Click on the Search by Symbol/Tag on the right hand side and click on the symbols of interest.

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

Head Fake

Coronavirus is spreading. There is high probability of a much larger number of cases in the United States compared to the current numbers.

The current numbers have been underreported because of the unavailability of coronavirus tests and highly restrictive policies on who could be tested.

Let’s explore with the help of two charts.

Two chart

Please click here for a long term chart of the Dow Jones Industrial Average ETF (DIA) which tracks the Dow (DJIA). For the sake of full transparency, this chart was previously published and no changes have been made.

Please click here for an intraday chart of Dow Jones Industrial Average ETF DIA.

Note the following:

• The first chart is a monthly chart and gives you the long term perspective.
• The second chart is a five minute chart and gives you a very short term perspective.
• The first chart shows that on a monthly basis, RSI is not oversold. This indicates there is more room to the downside.
• The first chart shows three Arora buy signals, 57% protection of Arora long term portfolios when the market was at its high, a short term trade on inverse ETF SQQQ or a short sale on Nasdaq 100 ETF (QQQ) and most importantly a long term trendline. The chart shows that the stock market is still levitating significantly above the long term trendline. This indicates there is more downside potential.
• The second chart shows the composition of 1294 Dow point rally in the stock market, the biggest one-day point rally ever.
• The second chart shows first short squeeze leg.
• The second chart shows a critical event around 2:45 pm. The stock market broke down below the micro support. After stops were taken out, the momentum reversed and the breakdown failed. This led to a breakout as shown on the chart.
• The second chart shows that the breakout at the end of the day led to a vicious second leg of a short squeeze.
• I have been an investors and a deep student of the stock market for over 30 years. Based on our algorithms, I can confidently say that the biggest point rally ever was a head fake. However, money printing and borrowing may turn this head fake rally into a real rally.

What to watch now

Consider watching the following:

• G7 issued a joint statement to use ‘All appropriate policy tools’ to mitigate the effects of coronavirus. In plain English, it means lower interest rates, more money printing and more borrowing.
• Malaysia and Australia lowered interest rates. Watch for more statements from central banks.
• Watch for governments calling for more borrowing and more spending.
• Watch for school closings.

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.  Smart money is buying 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

There is no discernable activity in momo crowd or smart money.

TLRY reported earnings worse than consensus.

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 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.

Gold futures are at $1605, silver futures are at $16.82, and oil futures are $47.89.

S&P 500 resistance levels are  3100, 3150 and 3220; support levels are 3050, 3026 and 2983.

DJIA futures are up 220 points.

What To Do Now?

It is important for investors to look ahead and not in the rear view mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding cash or treasury bills 24% – 34% and short to medium-term hedges of  0% – 15% and short term hedges of  5% – 10%. This is a good way to protect yourself and participate in the upside at the same time.

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.

Individual Trades

Please click on Home on the left side of the Menu.  Scroll down on the Home Page for individual trades.

Click on the Search by Symbol/Tag on the right hand side and click on the symbols of interest.

THE CORONAVIRUS SCANDAL SAYS INVESTORS OUGHT TO INCREASE PROTECTION ON STOCK MARKET RALLIES