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

China Trade Talks

The stock market party is getting louder on the news that U. S. and China are talking about trade.

Devastating Job Losses

More champagne is being poured on unemployment rising to a devastating 14.7% and 20.5 million jobs lost. Why is the stock market celebrating the loss of jobs? We have previously written in detail about the reasons behind this rally. During the great depression in 1933 when breadlines were common, unemployment rate was 24.9%. The present unemployment rate is 10% below the all-time high and there are no widespread breadlines – what a great reason for stock market bulls to celebrate!

Negative Interest Rates

Stock market investors are too drunk to notice that Fed funds futures rate has gone negative. This contradicts the ‘V’ shape rally elixir that the stock market is drunk on. Further it could foreshadow real bad things to come. Let’s explore with the help of two charts.

Two charts

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).

Please click here for an annotated chart of January Fed fund futures.

Note the following:

• The first chart gives stock market investors a long term perspective. This should always be the starting point of any analysis.
• The first chart shows that after touching the top band of the ‘mother of support zones’, the stock market is threatening to break above the low band of the resistance zone. From a technical perspective, this is normal behavior. However when you take into account the macro picture and fundamentals, it is a different story.
• The second chart shows that January Fed fund futures have gone negative. A value above 100 indicates negative rates.
• As a note of caution, the Federal Reserve has not announced negative interest rates at this time. Futures simply indicate expectations by the market that the Fed will announce negative interest rates by January.
• In our analysis at The Arora Report, calling negative interest rates ‘evil’ is not too strong.
• Japan and Europe already have negative interest rates. Have you taken a look at the perpetual anemic growth rates in Japan and Europe? In our analysis those economies are decaying. In contrast the U. S. has vigor and potential for significant growth. Hopefully our leaders will realize that the negative interest rates in Europe and Japan have failed and will stay away from them. But hope is not a good investment strategy. Investors should start considering a scenario of negative interest rates in the U. S. for the first time.
• Gold might be the primary beneficiary. Keep an eye on gold ETF (GLD), silver ETF (SLV) and gold miner ETF (GDX). Leveraged gold ETFs such as (NUGT) and (DUST) will likely provide many short term trading opportunities.
• It is highly speculative due to lack of history but bitcoin may be a beneficiary. Keep an eye on Grayscale Bitcoin Trust (GBTC). It often trades at a premium and has several drawbacks but has an advantage for those investors who do not want to open a cryptocurrency account. There will likely be many opportunities in bitcoin in the future.
• If the stock market was controlled by the prudent investors, there would be a massive selloff – perhaps a loss of over 50%. But the stock market is not controlled by the prudent investors.
• The momo crowd controls the stock market. Expect a narrative to develop among the momo crowd that negative interest rates are good for stocks. Stocks compete with bonds. If bonds are paying lower rates or negative rates, shouldn’t stocks be priced much higher? Expect the momo crowd to concentrate their buying in five stocks: Amazon (AMZN), Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG) (GOOGL) and Facebook (FB).
• What about negative interest rates reflecting a dire strait of the economy? That is simply too deep for the momo crowd.
• In theory, bonds should benefit. However do not rule out a huge selloff especially if the Fed loses control of the interest rates.

Momo Crowd And Smart Money In Stocks

The momo crowd is extremely aggressively buying stocks in the early trade. Smart money is lightly selling into the strength.

Gold

The momo crowd is acting like a yo-yo  in gold in the early trade. Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is acting like a yo-yo in oil in the early trade.  Smart money is inactive.

For longer term, please see oil ratings.

Marijuana

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

Technical Patterns

Technology stocks are tracing a bottom triangle. This is bullish. ETF of interest is IYW.

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 expect the stock market to open strongly 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 up and bonds are ticking down.

The dollar is slightly weaker.

Gold futures are at $1716, silver futures are at $15.69, and oil futures are $23.95.

S&P 500 futures resistance levels are 2924 and 3000: support levels are 2870, 2785 and 2714.

DJIA futures are up 244 points

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

China Data

The bullishness in the stock market today is that China’s exports rose more than the consensus.  Do you trust the data coming out of China?

Initial Jobless Claims

Initial Jobless Claim came at 3.169M vs. 3.05M.

New Research Paper

Scientists tell us that there is still not enough known about coronavirus. Don’t tell that to the stock market momo (momentum) crowd. The momo crowd has it all figured out that the stock market is going to go to new highs. The economy is opening up. People are going back to work. The government is borrowing record amounts. The Fed is printing money at an unprecedented rate. Vaccines are moving along. Antivirals are coming. What is there not to be bullish about? For a change, the new bullishness in the stock market as of this writing is coming from the new data from China and not from the economy opening up.

States that are opening up are seeing an increase in new coronavirus cases. This does not matter because the new motto is “Money, some liberty and the pursuit of more money.

There is a new coronavirus research paper out: Spike mutation pipeline reveals the emergence of a more transmissible form of SARS-CoV-2. The mutation is resulting in higher viral load and evasion of existing antibodies. In plain English, this means that those who suffered from a different strain may not be immune to the new strain. It is reasonable to extrapolate that current vaccines and treatments in development may not work well on the new strain if they are based on a different antibody epitope.

On the positive side, FDA has cleared Moderna (MRNA) Phase 2 coronavirus vaccine study to proceed. Let’s explore with the help of three charts.

Three Charts

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).

Please click here for a daily chart of Dow Jones Industrial Average ETF DIA.

Please click here for an annotated chart of S&P 500 ETF (SPY) that represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The first chart is a long term chart giving investors a long term perspective and should always be the starting point of any analysis.
• The first chart shows that the stock market has been up against the lower band of the resistance zone for a while.
• The second chart shows that as the stock market has bumped against the lower band of the resistance zone, it has been confined to a narrow range. The chart provides the clarity that debunks the narrative that the stock market is running up every day. However, this can change quickly at any time.
• The third chart compares S&P 500 ETF SPY with Dow Jones Industrial Average DIA and equal weighted S&P 500 ETF (RSP).
• Note that SPY is down about 11% for the year but RSP is down about 21% for the year. The reason is that S&P 500 is capital weighted and has heavy weight from these five stocks, Amazon (AMZN), Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG) (GOOGL) and Facebook (FB).
• The conclusion to be drawn is that if a handful of large capitalization stocks are excluded from the analysis, the stock market is not running up like the present popular narrative.

The Big Mistake

The big mistake that many investors are making is that they are believing in a binary outcome.

Investors should plan on a wide range of outcomes and use a framework that accommodates a wide range of outcomes using probabilities.

Momo Crowd And Smart Money In Stocks

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

Gold

The momo crowd is acting like a yo-yo in the early trade. Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

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

For longer term, please see oil ratings.

Marijuana

The momo crowd is buying marijuana stocks in the early trade. 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 expect the market to open strongly positive.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking  down and bonds are ticking up.

The dollar is stronger.

Gold futures are at $1696, silver futures are at $15.20, and oil futures are $26.27.

S&P 500 futures resistance levels are 2924 and 3000: support levels are  2785, 2714 and  2653.

DJIA futures are up 298 points

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

Shift In American Values Is Key To The Future Of The Stock Market

There is an old saying: “Watch what they do, not what they say.” “Life, liberty and the pursuit of happiness” is in the United States Declaration of Independence but that was a long time ago. Over time, societal values change. The coronavirus and stock market have shown us that the new values are: “money, some liberty and the pursuit of money.” America is opening up even though in many locations deaths from coronavirus are rising. Coronavirus task force is about to be disbanded. As the economy opens up, there will likely be more sickness and more deaths. You have to have been under a rock to not notice that the stock market has been prioritizing money from the economy opening too soon over life. Now Trump has confirmed the stock market message. Trump says that even if more Americans get sick and die, the country must re-open.

Here is the key question for stock market investors. Have American values permanently changed or is it a transitory phase? I would like to believe that this is a transitory phase. Will the stock market excitement go away if more Americans get sick and the level of deaths remains high? Let’s explore with the help of two charts.

Two Charts

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).

Please click here for a chart of S&P 500 ETS (SPY) that represents the benchmark stock market index S&P 500 (SPX) compared to four securities.

Note the following:

• The first chart gives investors a long term perspective and should always be the starting point of any stock market analysis.
• The second chart gives investors a short term perspective.
• The first chart shows that the stock market opened the month of May below the low band of the resistance zone and is now threatening to penetrate the resistance zone.
• Ideally, new strategic buying should take place if either the stock market pulls back to the support zone shown on the first chart or the stock market goes above the resistance zone shown on the chart.
• Under these market conditions, it is very important for prudent stock market investors to differentiate between strategic buying and selling vs. tactical actions.
• The second chart shows that year-to-date American Airlines (AAL) stock is down 67%, Disney (DIS) stock is down 32%, Amazon (AMZN) stock is up 22% and Nasdaq 100 ETF (QQQ) which represents Nasdaq 100 ETF (NDX) is slightly positive.

How To Navigate

All investors are differently situated.

Those who believe the shift in American values is permanent, are underinvested or cannot resist the temptation may consider buying stocks and ETFs that are not outliers from a band surrounding S&P 500. For example, in the second chart, American Airlines and Amazon would be considered outliers but the ETF QQQ and Disney would merit buying.

It is true that Disney stock is about 25% higher compared to when it dipped into the Arora buy zone as shown on the second chart. It is also true that Disney reported earnings less than the consensus and suspended its dividend. There are many unknowns ahead for Disney but if you are a believer in the stock market going up due to the economy opening, Disney has an unmatched set of assets. Disney has received permission to open its park in Shanghai. Also on the positive side, Disney stock is down about 32% year to date and may go lower due to poor earnings and dividend suspension. A dip is a buying opportunity for those who are believing in the economy opening story.

Buying the ETF QQQ is a safer way than buying the high flyer Amazon, again only for those who have bought into the narrative of stocks going higher or are underinvested. As a note of caution, consider only those stocks and ETFs to buy that have a buy now rating of ‘Yes’ and buy very small quantities and plan to scale in.

The foregoing is for those who believe in the permanent shift in American values. It goes without saying that those who think the value shift is transitory may consider taking some profits to take advantage of the rally.

Those who are comfortably situated within the protection bands for their long term portfolio may consider taking no strategic action.

All investors should consider taking advantage of short term trading opportunities and nibbling when signals are given.

ADP Employment

ADP Employment came at -20.236 million vs. -21.5 million consensus.  This means that the employment loss is slightly better than expected.

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money sold into the strength earlier in the morning but is inactive since then.

Gold

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

For longer term, please see gold and silver ratings.

Oil

API reported crude inventory build of 8.44M barrels vs. 8.12M barrel consensus.  This data was bearish but a short squeeze occurred causing the crude to rally to over $25.  Such up moves due to short squeezes on bearish data are common.  When crude went over $25, smart money selling came in reversing the momentum. Once the momentum  reversed, the momo crowd that was buying earlier started selling.

For longer term, please see oil ratings.

Marijuana

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

Technical Patterns

Spanish stocks are tracing a continuation triangle. This is bearish. ETF of interest is EWP.

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 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 up and bonds are ticking down.

The dollar is  stronger.

Gold futures are at $1692, silver futures are at $15.05, and oil futures are $23.23.

S&P 500 futures resistance levels are  2924 and  3000: support levels are  2785, 2714 and 2653.

DJIA futures are up 158 points

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

Buying Value In This Stock Market

There is no secret that the stock market is controlled by the momo (momentum) crowd. The momo crowd buys not because of the fundamentals but because the market is going up. At a time like this, many prudent investors are gravitating towards value investing – the strategy of finding and buying ‘value’.  On the surface this makes sense. However, before following the value strategy, take a look at the charts linked below and avoid concentration in value stocks.

Two Charts

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).

Please click here for a chart of S&P 500 ETF (SPY) that represents the benchmark stock market index S&P 500 (SPX) compared with eight popular stocks and ETFs.

Note the following:

• The first chart gives stock market investors the long term perspective and should be the starting point of any analysis.
• The first chart shows that the stock market in the month of May has been slightly below the low band of the resistance zone shown on the chart but now is threatening to penetrate the resistance zone.
• The second chart shows five big tech stocks of Amazon (AMZN), Apple (AAPL), Microsoft (MSFT), Facebook (FB) and Alphabet (GOOG) (GOOGL).
• The second chart shows stock of Berkshire Hathaway (BRK.B), Warren Buffett’s company. Warren Buffett is known for finding value and buying it in the stock market.
• The second chart shows large-cap value iShares S&P 500 Value ETF (IVE).
• The second chart shows SPDR S&P 600 Small Cap Value ETF (SLYV).
• The second chart shows that Warren Buffett has underperformed Apple stock by 18% even though Warren Buffett is a major shareholder of Apple. This shows how poor the performance of the rest of Buffett’s portfolio has been. In spite of lack of performance, Warren Buffett is not buying stocks.
• The second chart shows that the large-cap value ETF has underperformed Amazon stock by about 44%.
• The second chart shows that as bad as the performance of large-cap value ETF has been, the small-cap ETF has performed worse.
• The second chart shows that the small-cap ETF has underperformed the large-cap ETF by about 12%.

What Does It All Mean?

Consider the following:

• At times the White House has cited coronavirus forecast by University of Washington’s Institute for Health Metrics Evaluation. The model is forecasting the number of deaths could reach 135,000 by early August.
• As more states open up, the death count from coronavirus appears to be going higher.
• The U. S. government is set to borrow an unprecedented $3 trillion this quarter.
• Federal Reserve is printing money at an unprecedented rate.
• Millions of American’s have lost their jobs.
• Many businesses are being destroyed.
• At a time like this, the momo crowd sees only one outcome – a quick ‘V’ shaped recovery and the stock market going to new highs.
• In contrast, prudent investors see a wide range of outcomes.

In our analysis at The Arora Report, it is simply arrogant and greedy to be locked into only one outcome theory. The level of arrogance and greed has reached about the same height as it was on January 30 when in spite of The Arora Report call that a stock market drop was ahead due to coronavirus, investors were aggressively buying momentum stocks.

Investors should consider a wide range of outcomes and position their long term portfolios and short term trading accordingly. It is important that in formulating this plan, investors should avoid concentration on finding and buying value based on the hard data from the charts shown above. Yes, on the surface, the concept of finding and buying value in this stock market seems attractive, but the facts are value investing is not working at this time.

Momo Crowd And Smart Money In Stocks

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

Gold

The momo crowd is acting like a yo-yo in gold in the early trade. Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

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

For longer term, please see oil ratings.

Marijuana

The momo crowd is buying marijuana stocks in the early trade.  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 expect the market to open strongly 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 up and bonds are ticking down.

The dollar is stronger.

Gold futures are at $1706, silver futures are at $14.97, and oil futures are $23.26.

S&P 500 futures resistance levels are  2870, 2924 and 3000: support levels are 2785, 2714 and  2653.

DJIA futures are up 313 points

BUFFETT SAYS ‘BET ON AMERICA’ IN THE STOCK MARKET – HERE IS HOW