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

Potential 5000 Point Jump

Coronavirus is spreading and investors continue to grapple with what is next for the stock market.

Back in January, when investors were not paying attention to coronavirus and the stock market was hitting new highs, I warned that an external event such as coronavirus could cause a major drop in the stock market.  The long term Arora portfolios were up to 57% protected at the stock market top and the protection was rapidly increased up to 86%.

Ever since then, at The Arora Report, we have been devoting considerable effort to assessing potential treatments. Our thesis from the very beginning was that a vaccine would take at least a year. The best hope was finding an antiviral that at least lessened the severity of coronavirus disease similar to Tamiflu lessening the severity of the flu. At The Arora Report, we are not infectious disease experts. Based on our consultations and research, our conclusion for a while has been that chloroquine presented the most potential out of the several drugs being tried.

One of the difficulties has been that most of the data has been coming from China. Without being politically correct, data from China is considered by some to be suspect. The data in this journal is likely more credible than other data.

Trump touted chloroquine as a potential cure for coronavirus. Trump has come under severe criticism by some for giving false hope while others are defending Trump. I won’t wade into the controversy but focus on implications for the stock market. Let’s explore with the help of a chart.

The chart

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

Note the following:

• The chart shows the target zone if there is a positive development on an antiviral drug against COVID-19.
• The chart shows a small bounce in the stock market after the support zone was broken. This bounce is primarily due to a short squeeze and quadruple witching. In quadruple witching, stock options, stock index futures, stock index options and single stock futures expire.
• It seems clear that chloroquine has in vitro activity against coronavirus. In plain English, this means that chloroquine has effect against coronavirus in a test tube.
• Anecdotal evidence is substantial that chloroquine helps with coronavirus.
• There are no rigorous clinical trial results at this time that show chloroquine being beneficial against coronavirus.
• Chloroquine is an inexpensive old drug that is used against malaria and also in certain cases of lupus and arthritis.
• German company Bayer (BAYRY) is donating three million tablets of chloroquine.
• The generic drug manufacturers such as Teva Pharmaceutical (TEVA) and Mylan (MYL) appear to be gearing up for mass production of chloroquine.
• There are many other drugs with possibilities, notably Gilead Sciences’ (GILD) remdesivir, that are currently being tested.

What does it all mean?

In addition to watching S&P 500 index (SPX), consider watching two large-cap technology stocks Apple (AAPL) and Amazon (AMZN), two semiconductor stocks AMD (AMD) and Intel (INTC), two airline stocks American Airlines (AAL) and Southwest (LUV), and two bank stocks JPMorgan (JPM) and Bank of America (BAC). Watching the charts of these six stocks will give you insights that merely watching the indices will not give you.

Consider covering short positions, reducing hedges and buying at the first sign of a positive drug result. We have published a coronavirus portfolio that will benefit the most.

Chloroquine may not be the Holy Grail. In some people it can have significant adverse effects. In a larger dose it can kill. In clinical trials the result could be that this drug does not work against coronavirus.

Strictly observing the science, there has been great success against HIV virus but so far there is no cure for the common flu.

Under these circumstances, investors ought to pay special attention to Arora’s Second Law of Investing and Trading: Nobody knows with certainty what is going to happen next in the markets.

Momo Crowd And Smart Money In Stocks

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

Gold

The momo crowd is lightly buying gold.  The 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 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 and can swing in either direction.  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 $1500, silver futures are at $12.60, and oil futures are $25.22.

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

DJIA futures are up 210 points

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

Jobless Claims

Jobless claims came at 281K vs. 220K consensus. Expect jobless claims to rocket. This is an important indicator that all investors should watch.

Prudence

As coronavirus spreads, prudent investors and money managers are doing much better than those who got swept away with the positive momentum in the stock market going into the mid-February peak. I do have empathy for the investors who unwittingly became a part of the momo (momentum) crowd even though I often received hate mail from them for dubbing them the ‘momo crowd’. It is high time for the momo crowd to switch to prudence. Even prudent investors need to be extra careful about three traps ahead. First let’s build the requisite background with the help of two charts.

Two chart

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

Please click here for an intraday chart of S&P 500 futures (Parris symbol for June futures) which represent the popular S&P 500 index (SPX).

Note the following:

• The first chart shows Arora call on January 25^th that an external event such as the virus from China could hurt stocks. At that time, not many were paying attention to what was happening in China and bulls had decided that the virus was of no consequence. As the stock market was making new highs at that time, I was receiving a large amount of hate mail for raining on the parade of the bulls. My long time readers know that I use the hate mail as a proprietary indicator. Often whichever direction the hate mail goes, the opposite happens when the hate mail becomes extreme.
• Now the hate mail has changed showing that many investors still have not taken any protective steps, they are confident of a ‘V’ shaped recovery and believe that they will be back to breakeven in a couple of months. This is a negative because bottoms are formed when such investors capitulate and sell.
• The first chart shows that the top support zone marked on the chart has broken. I had previously written that there was only a 30% probability of this support zone holding. When a strong support zone like this is broken, all rallies should be considered suspect at first.
• According to our algorithms, forced liquidation of some portfolios has started. This is unfortunate for some but is a good positive step to an eventual bottom.
• The second chart shows three periods of vicious short squeezes according to the algorithms at The Arora Report.

The three traps

Consider not falling into these three traps that many investors including money managers are likely to fall into.

• Differentiate between real buying and short squeezes. Short squeezes lead to artificial buying and often reverse.
• Even when the real buying occurs, be mindful that some of the sharpest rallies occur in bear markets. I would not be surprised to see 20% rallies that fail.
• Do not make up your mind based on the past data and refuse to change based on new facts as they emerge.

Opportunities

Many opportunities are developing both from the long side and the short side.

From the long side, take a look at the charts of Walmart (WMT), Conagra (CAG) and Campbell Soup (CPB).

From the short side, take a look at the chart of American Airlines (AAL).

Watch these stocks as indicators

In addition to indexes, consider watching two large-cap technology stocks Apple (AAPL) and Amazon (AMZN), two semiconductor stocks AMD (AMD) and Intel (INTC), two airline stocks American Airlines and Southwest (LUV), and two bank stocks JPMorgan (JPM) and Bank of America (BAC).

Momo Crowd And Smart Money In Stocks

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

Gold

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

For longer term, please see gold and silver ratings.

Oil

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

For longer term, please see oil ratings.

Marijuana

There is no discernable momo crowd or smart money active 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 but can quickly swing to positive on a short squeeze.  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 $1477, silver futures are at $11.98, and oil futures are $22.84.

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

DJIA futures are down 236 points

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

Limit Down

Stock futures are limit down.

The Big Danger To Investors

While most investors will lose their shirt, for knowledgeable investors, there are several ways to generate extraordinary wealth in the coming years.

As coronavirus spreads, the Fed and Trump administration are jumping into action to counter coronavirus. Broadly speaking, emails I receive fall into two categories: those who think Trump is doing an excellent job and those who think Trump is incompetent to handle the situation. This is not the time for partisan bickering but a time for all of us to come together and defeat coronavirus. With the exception of one very intelligent person, everybody who writes me is missing one of the most important points. Let’s explore with the help of two charts.

The chart

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

Please click here for annotated chart of long Treasury bond ETF (TLT).

Note the following:

• Let us imagine a household that is in debt up to its eyeballs and every month spending more than its income by a large amount. Then a disaster hits. The income substantially goes down but expenses substantially go up. What will be the end result? Will it be bankruptcy? The U. S. is a resilient strong rich nation. However, the example of the hypothetical household applies with the exception of bankruptcy. The eventual solution may be demonetization of the debt.
• Yes, demonetization of the debt is ahead – the same debt that investors are rushing to buy for its perceived safety.
• The intelligent investor I referred to above has written twice asking, “Is there a limit to this?”
• The first chart shows that in spite of massive efforts by the government, the stock market is about to breach a critical support level.
• I have previously written that if the top support level shown on the first chart is breached, the stock market is likely to fall to the second support level.
• The second support level has 80% probability of holding. To learn more about the support levels and the time to buy please prior morning capsules.
• The second chart shows that investors who rush to the perceived safety of Treasury bonds have lost 17% from the peak in a matter of days.
• The second chart shows that bonds lost value after the Fed dropped rates to near zero. Many investors were expecting the opposite to happen.
• The second chart shows that bonds fell after Trump disclosed his trillion dollar stimulus program.
• The answer to the intelligent investor’s question on limits is in plain sight in the second chart.

Better ideas

Do you have better ideas? It would have been nice if the country was not so heavily indebted and engaged in trillion dollar deficit spending as well as interest rates were much higher and the Fed’s balance sheet was much smaller going into coronavirus crisis. We are here and cannot go back. It is easy to criticize our leaders but do you have better ideas?

What does it all mean?

The first chart shows the Arora call Jan. 25 that an external event such as the virus from China could hurt stocks. At that time, not many were paying attention to what was happening in China, and bulls had decided that the virus was of no consequence.

At the stock market peak, Arora portfolios were up to 57% protected. Now they are up to 86% protected.

In addition to Dow Jones Industrial Average and S&P 500 index (SPX), consider watching charts of mega-caps stocks Apple (AAPL) and Amazon (AMZN), two semiconductor stocks AMD (AMD) and Intel (INTC), two airline stocks American Airlines (AAL) and Southwest (LUV), and two bank stocks JPMorgan (JPM) and Bank of America (BAC).

Momo Crowd And Smart Money In Stocks

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

Gold

Since stock futures are halted and gold futures are trading, gold is being sold to raise cash.  The momo crowd is selling gold. Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

Since stock futures are halted and oil futures are trading, oil is being sold to raise cash.  The momo crowd is 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.  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 $1498, silver futures are at $12.09, and oil futures are $24.80.

S&P 500 futures  are halted.

DJIA futures are halted.

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

Stimulus Package

Yesterday the stock market lost about 3000 Dow points, one of  the worse losses since October 19, 1987.  On October 19 1987 the stock market lost about 22.6% in one day. I was heavily invested in the stock market at that time and learned a lot from that experience.  Now you are benefiting from that experience. I went on a quest to find a better way to invest than traditional methods.   This quest succeeded with ZYX Change Method and ZYX Asset Allocation Model.

In the evening stock futures went limit up about 1100 points.  This was on the hopes of stimulus. Early this morning, investors concluded that the stimulus was not going to help because this is a biological problem.  Stock futures gave back all of their gains.  As of this writing, investors who are slower are catching on to the potential stimulus package and are aggressively buying stocks.  Stock futures are running up again.

The Key Question

As the coronavirus spreads the stock market has become extraordinarily volatile. Both private investors and money managers are having difficulty analyzing the stock market because there are no prior models similar to the scope of coronavirus to guide the stock market investors.

Here is a key question: “Is there an easy objective way to tell when the stock market bottom is likely in?” The emphasis is on ‘easy’ and ‘objective’. At The Arora Report, we rely on adaptive ZYX Asset Allocation Model with inputs in 10 categories and proven track record over a long time. However the model is complex. As far as the opinions about the stock market are concerned, they are a dime a dozen. Let’s explore the answer to the key question with the help of a chart.

The chart

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

Note the following:

• This is a monthly chart giving a long term perspective to the investors.
• Relative strength index (RSI) shown on the chart is a measure of internal momentum of the price series being plotted, in this case Dow Jones Industrial Average.
• In the middle pane on the chart, the white horizontal line shows traditional oversold level in RSI.
• The chart shows that RSI at present is very oversold.
• In ordinary times, oversold stock market tends to bounce but these are no ordinary times.
• In the middle pane, the chart shows in green the RSI level at the last major bottom in March 2009. This also coincides with the Arora buy signal given in March 2009 for aggressive buying that turned out to be the start of the long bull market.
• To learn more about the support zones shown on the chart please see yesterday’s Morning Capsule.

The easy objective way

The easy objective way to tell if the stock market bottom is in is to look for RSI on a monthly chart to reach or approach the RSI level seen at the last major bottom as shown on the chart and start moving up. For confirmation, consider doing similar analysis on two large-cap technology stocks Apple (AAPL) and Amazon (AMZN), two semiconductor stocks AMD (AMD) and Intel (INTC), two airline stocks American Airlines (AAL) and Southwest (LUV), and two bank stocks JPMorgan (JPM) and Bank of America (BAC).

As a further confirmation, look for very heavy volume.

Retail Sales

Retail Sales Ex-auto came at -0.4% vs. +0.1% consensus.  We leave auto out because auto data is noisy and hinders predictions.

The retail sales data going into the lockdowns was bad.  Now for many retail stores sales are going to go to zero.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively buying stocks as of this writing. Smart money is inactive.

Gold

The momo crowd is acting like a yo-yo.  Earlier in the morning the momo crowd was aggressively selling gold.  As of this writing the momo crowd is aggressively buying gold.  The smart money continues to  buy the dips.

Investors need to do a better job at understanding smart money actions in gold. Smart money tends to scale in which is exactly what is happening.  Those with less knowledge wrongly assume that smart money just goes all in or all out.

Smart money is also very sophisticated.  There are looking for an asset class in gold that has thousands of years of history maintaining value.

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 selling marijuana stocks.  Smart money is inactive.

Technical Patterns

Oil and gas exploration stocks are tracing an inverted hammer.  This is bullish. ETF of interest is XOP. Note that this trade will work only if the stock market stabilizes.

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 very strong. This is not a good sign for the stock market and  a very bad sign for gold.

Gold futures are at $1484, silver futures are at $12.33, and oil futures are $28.60.

S&P 500 futures resistance levels are    2510, 2567 and  2606: support levels are  2400, 2383 and  2362.

DJIA futures are up 163 points

INCREASE PROTECTION; INVESTORS PREPARE NOW: THIS IS HOW LOW STOCK MARKET CAN GO