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.
TRUMP WANTS TO PUNISH CHINA FOR CORONAVIRUS – HERE IS WHY THE STOCK MARKET INVESTORS SHOULD BE CONCERNED
To gain an edge, this is what you need to know today.
Yuan Falls
Stock market investors should be concerned as Trump contemplates punishing China for coronavirus. First and foremost, I am politically agnostic. My sole job is to help investors. Irrespective of your like or dislike for Trump, you have to give him credit for at times openly saying what many are thinking but don’t want to say. Could China have stopped the coronavirus? Was China quickly honest about coronavirus? Did coronavirus originate in a lab in China? For stock market investors, 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) which represents popular stock market index Dow Jones Industrial Average (DJIA).
Note the following:
- Overnight Chinese currency yuan fell 0.7% against the dollar in offshore trading. For a currency, this is a big move.
- There has been talk of the U. S. canceling the debt it owes China. However this is unlikely because the U. S. wants to maintain sacrosanctity of the full faith and credit of U. S. debt obligations.
- Trump says he has alternate ways to punish China such as imposing tariffs.
- The stock market does not like the idea of tariffs.
- The relations between two largest economies of the world are deteriorating at a time stock market is at the lower band of the resistance zone shown on the chart.
- The day to day gyrations of the stock market create confusion. However the advantage of the monthly chart is that it provides clarity. So far as the chart shows, it is very simple – stock market hit the upper band of the ‘mother of support zones’ and has now rallied to the bottom band of the resistance zone.
Momo Crowd And Smart Money In Stocks
The momo crowd is selling stocks in the early trade. Smart money is inactive.
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
A massive short squeeze in oil continues.
The momo crowd is buying oil in the early trade. Smart money is inactive.
For longer term, please see oil ratings.
Marijuana
There is no discernable mom crowd or smart money active in marijuana stocks.
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 and bonds are range bound.
The dollar is slightly weaker.
Gold futures are at $1685, silver futures are at $15.02, and oil futures are $20.01.
S&P 500 futures resistance levels are 2870, 2924 and 3000: support levels are 2785, 2714 and 2653.
DJIA futures are down 377 points
THE NEW STOCK MARKET HOPIUM – 30 MILLION JOBS LOST AND BAD EARNINGS ARE GREAT REASONS TO BUY
To gain an edge, this is what you need to know today.
Jobless Claims
About 30 million people have lost their jobs. Weekly jobless claims came at 3.839 million vs. 3.5 million consensuses. Continuous claims came at 17.992 million.
Hopium
In my over 30 years in the stock market, I have often witnessed periods when stock market believes ‘bad news’ is ‘good news’ and ‘good news’ is ‘great news’. I have developed techniques to profit from such periods. At this time, the hopium in the stock market has turned into something quite different from most euphoric periods with few exceptions that led to crashes – all news is great news.
How should investors navigate this stock market? For the momo (momentum) crowd, this is a no-brainer – the momentum is up, so buy and buy. But what if you are a prudent investor? 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 popular stock market index Dow Jones Industrial Average (DJIA).
Please click here for an annotated chart of S&P 500 ETF (SPY) which represents benchmark stock market index S&P 500 (SPX) compared to several securities.
Please click here for an annotated chart of Facebook (FB) stock.
Note the following:
- Investors should consider analyzing the stock market in multiple time frames.
- The first chart is a monthly chart giving stock market investors a long term perspective. This chart should be the starting point of all analysis.
- The second chart is a day chart giving a short term perspective to stock market investors.
- The third chart is a five minute chart giving stock market investors a very short term perspective.
- The first chart shows that the stock market is at the lower band of the resistance zone. This is a high risk area. Historically after a small penetration, there is high probability of a reversal. This is exactly what was likely to happen to the stock market when good news on remdesivir treatment for coronavirus from Gilead (GILD) came and the stock market ran up on the news.
- The third chart shows a strong up move in Facebook stock after it reported earnings. Investors focused on earnings stabilizing in April and higher engagement numbers. People are stuck at home, what else did investors expect other than more people visiting Facebook more often? The second chart shows that Facebook stock had run up going into the earnings.
- Investors ignored the simple fact that Facebook does not charge people to use Facebook. Facebook makes money from advertisers. What did Facebook have to say about advertisers – lower advertisement numbers, falling advertising rates and lower profit margins this year. What did investors do in response to these negative comments from Facebook – the momo crowd aggressively bought the stock.
- The third chart shows the VUD indicator. VUD indicator is the most sensitive measure of net supply demand in real time.
- The third chart shows that at least in the case of Facebook for the period shown on the chart, sanity among investors had not completely gone out of fashion. The chart shows that there was some net selling not just solid buying as has recently been the case in many stocks such as Twitter (TWTR), Snap (SNAP), Microsoft (MSFT) and Alphabet (GOOG) (GOOGL).
- Before you send me hate mail, please know that The Arora Report bought Facebook at $49.92 and is still holding the position in the Model Portfolio. Moreover, in March Facebook fell to the low of about $137 in the Arora buy zone before rising.
- The second chart compares stock market index S&P 500 to stocks of Apple (AAPL), Amazon (AMZN), Facebook, Microsoft and Alphabet.
- The second chart shows that during the stock market swoon, four out of five big tech stocks fell into Arora buy zones giving investors opportunities to buy these stocks at attractive prices.
- The second chart also shows that the strategy of buying value stocks has miserably failed this year – value has no place in the new stock market hopium, only momentum counts.
What does it all mean?
Investors ought to follow the framework of protection bands, strategically buy when stock and ETFs dip into Arora buy zones or have a ‘Yes’ rating to ‘buy now’ but tactically not nibble unless there is a pullback or a decisive breakout. In addition, investors who are trading oriented should consider taking advantage of short term trading opportunities when the setups are right.
Momo Crowd And Smart Money In Stocks
The momo crowd extremely aggressively bought in the after hours yesterday and early this morning. The momo crowd is selling as of this writing. Smart money sold into the strength.
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
The momo crowd is 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 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 $1712, silver futures are at $15.27, and oil futures are $16.88.
S&P 500 futures resistance levels are 2924 and 3000: support levels are 2870, 2785 and 2714.
DJIA futures are down 262 points.
PERFECT TIMING OF THE GOOD NEWS ON CORONAVIRUS TREATMENT AS THE STOCK MARKET APPROACHES A HIGH RISK AREA
To gain an edge, this is what you need to know today.
Good News
I sit surrounded by 17 screens that help me visualize the incoming data related to the stock market quickly. These days, front and center are screens on coronavirus related stocks. Often stocks start moving quicker than I can find out about the news.
My Gilead (GILD) alarm rang and a quick glance showed that Gilead stock was halted. Stock market futures showed continued buying indicating that the news was likely good. Stock market futures started rocketing and Wall Street’s fear gage VIX (VIX) started falling as the news became known. I was in the process of absorbing the news when the email came from Sonia Choi, Vice President of Gilead providing a double dose of good news.
The first good news was that data emerging from National Institute of Allergy and Infectious Disease (NAID) study of remdesivir for treatment of coronavirus showed the antiviral had met its primary end point. The second good news was from the results of Gilead’s SIMPLE Trial evaluating five day and 10 day dosing duration. The study showed that patients receiving a 10 day treatment of remdesivir achieved similar results compared to those taking a five day course.
Let’s examine with the help of two charts.
Two charts
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).
Please click here for an annotated chart of S&P 500 ETF (SPY) which represents benchmark stock market index S&P 500 (SPX).
Note the following:
- The first chart is a monthly chart and gives investors a long term perspective.
- The second chart is a five minute chart showing the very short term perspective.
- The first chart shows the stock market has rallied to the bottom band of the resistance zone. This is a very high risk area for the stock market to reverse itself to the downside.
- The second chart shows that the timing of the Gilead study release could not be better as it reduces the downside risk.
- The second chart shows that the stock market took off like a rocket on Gilead news.
- The second chart shows VUD indicator. The VUD indicator is the best measure of net supply demand in real time.
- The chart shows VUD indicator indicating solid net buying as shown in green.
GDP
GDP came at -4.8% vs. -4.3% consensus.
The Fed
The Fed will announce its policy decision this afternoon at 2:00 pm ET.
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 selling gold in the early trade. Smart money is inactive.
For longer term, please see gold and silver ratings.
Oil
API data was bullish.
The momo crowd is 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 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 down and bonds are ticking up.
The dollar is weaker.
Gold futures are at $1718, silver futures are at $15.55, and oil futures are $15.12.
S&P 500 futures resistance levels are 2924 and 3000: support levels are 2870, 2785 and 2714.
DJIA futures are up 406 points
OXFORD NEWS, AMERICANS ARE BEING SETUP FOR A STOCK MARKET THAT NEVER GOES DOWN – THANKS FEDERAL RESERVE!
To gain an edge, this is what you need to know today.
Oxford News
There is good news from Oxford scientists. They will be testing their coronavirus vaccine on more than 6,000 people by the end of next month. If that was not enough good news, they are planning on several million doses of the vaccine available by September. If successful, this fast schedule is not discounted in the stock market prices and may lead to an explosive rally on top of the rally so far.
Dangerous Stock Market Setup For The Long Term Investor
Nirvana for the stock market appears to be at hand. Governments are moving towards socializing losses but keeping gains private. American society is being set up for stock market always going up and never going down – it suits the rich and the 401(k) middle class.
There is an implicit put in the stock market that the Fed will start buying stocks if things get worse. Is this healthy and sustainable in the long term? The stock market momo (momentum) crowd does not need an answer – they simply buy because the stock market is going up.
Does this mean you should rush out and buy stocks? The answer is ‘No’. 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 popular stock market index Dow Jones Industrial Average (DJIA).
Please click here for an annotated chart of S&P 500 ETF (SPY) which represents benchmark stock market index S&P 500 (SPX).
Note the following:
- The first chart is a monthly chart giving the long term perspective to stock market investors. This chart should always be the starting point of any stock market analysis.
- The second chart is a daily chart giving a short term perspective of the stock market.
- Stock market investors should do the analysis in multiple time frames.
- RSI represents internal momentum of the stock market.
- The first chart shows that RSI represented by the green line has moved out of the oversold zone and is now about to give a buy signal when it crosses the orange line which represents a moving average of the RSI.
- The first chart shows that the stock market is at the bottom band of the resistance zone. Historically, markets tend to pull back after a slight penetration.
- The second chart shows RSI divergence. In plain English, this means that as the stock market has moved up, RSI is lower than the prior high. This is a negative in the short term in the short term.
- The second chart shows that the volume is becoming lower. This is a negative.
- The second chart shows that the stock market is attempting to break out of the mini resistance. Often breakouts from a similar pattern fail.
Key Stocks
Investors need to pay attention to five key stocks: Amazon (AMZN), Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG) (GOOGL) and Facebook (FB). The reason is that investors are hiding in these stocks.
What Does It All Man?
Money printing and borrowing is not sustainable in the long term and poses serious risks. The economy opening up is good news but it is not likely to be a smooth road ahead unless there is a successful vaccine.
Stock market investors ought to be nimble, watch the reaction to the earnings of the five stocks mentioned above and not get caught up in a fixed bullish or bearish view. Based on my over 30 years’ experience in the markets, I suggest that investors neither be bearish nor bullish but evaluate the data as it comes. Investors ought to follow the framework of protection bands, strategically buy when stock and ETFs dip into Arora buy zones or have a ‘Yes’ rating to ‘buy now’ but tactically not nibble unless there is a pullback or a decisive breakout. In addition, investors who are trading oriented should consider taking advantage of short term trading opportunities when the setups are right.
Momo Crowd And Smart Money In Stocks
The momo crowd is aggressively buying stocks. Smart money is lightly selling into the strength.
Gold
There is no discernable smart money or momo crowd activity in gold in the early trade.
For longer term, please see gold and silver ratings.
Oil
The momo crowd is selling oil in the early trade. Smart money is inactive.
For longer term, please see oil ratings.
Marijuana
The momo crowd is aggressively buying marijuana stocks in the early trade. Smart money is inactive.
Technical Patterns
Metal and mining stocks are tracing a rather messy head and shoulders bottom. This is bullish. ETF of interest is XME.
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. 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 down and bonds are ticking up.
The dollar is weaker.
Gold futures are at $1727, silver futures are at $15.44, and oil futures are $11.40.
S&P 500 futures resistance levels are 2924 and 3000: support levels are 2870, 2785 and 2714.
DJIA futures are up 416 points.
$5.1 TRILLION HIDEOUT FOR THE BIG MONEY IN THE STOCK MARKET WILL BE TESTED THIS WEEK
To gain an edge, this is what you need to know today.
The Hideout
The stock market is detached from the Main Street – this is what I hear from investors most often these days. Many are puzzled while others are convinced that this is a sucker’s rally. There is merit to both bull and bear cases for the stock market.
The bear case is well understood, the bull case is not as apparent to many investors. Investors need to dig below the surface of the stock market. When they do so, they will find that the big money is hiding in the $5.1 trillion hideout of large-cap tech stocks. This stock market hideout will be tested this week. 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 popular stock market index Dow Jones Industrial Average (DJIA).
Please click here for an annotated chart of S&P 500 ETF (SPY) that represents the benchmark index S&P 500 (SPX) compared with six securities.
Note the following:
- The first chart is a long term monthly chart of the stock market and should always be the starting point for any analysis under the present stock market conditions.
- The first chart shows that the stock market has rallied to the bottom band of the resistance zone. Historically, the bottom band of the resistance zone is a key point to watch. The chart shows The Arora Report correctly called on January 22 the coming coronavirus drop in the stock market and the Arora Portfolios were well protected.
- The second chart also shows year-to-date performance of Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG) (GOOGL) and Facebook (FB). These companies together represent a market cap of $5.1 trillion.
- The second chart shows that four of these stocks fell into the Arora buy zones during the stock market dip providing investors opportunities to buy these stocks at attractive prices. Arora buy zones are given in advance giving investors time to prepare to buy.
- The second chart compares SPDR S&P 500 ETF Trust with iShares Russell 1000 Value ETF (IWD). More on buying value stocks in a future column.
- The second chart shows that small-cap value stocks have underperformed S&P 500 by 9.1% year-to-date.
- Investors are hiding in these five stocks shown on the second chart.
- Apple, Amazon, Microsoft, Alphabet and Facebook are about to report earnings. Investor’s expectations are very high. More important than the earnings will be what these companies say about the future. I will be carefully listening to the conference calls. It is important for investors to remember that CEOs of these companies are highly incentivized to not only keep their stock prices levitating but also to move their stocks higher.
- Human beings tend to suffer from confirmation bias. The people who are putting big money into these five stocks are not any different. Expect them to look at the earnings through the lens that the stocks of these companies are going to the moon and have very little risk.
An Example
Take the example of Amazon stock. It is no secret that Amazon stock has benefited from coronavirus shutdown in both of its major business segments – retail and AWS cloud business. However, investors are ignoring the following risks in Amazon stock:
- Sky high valuation.
- As shown on the second chart, good news from coronavirus is already discounted in the 26.99% gain year-to-date.
- Coronavirus crisis has shown that competitors such as Walmart (WMT) and Target (TGT) have caught up with Amazon and in many ways are better able to take advantage of the future because of their physical stores.
- Amazon had to rush to hire thousands of new workers. This should raise costs.
- Amazon had to cut back on non-essential goods which provide higher margins.
- Amazon is becoming simply too powerful and will come under more regulatory scrutiny.
The Test
What happens next to the stock market will depend on this $5.1 trillion hideout holding or crumbling. Beware that the impact on the stock market will not be about the facts but will mostly depend on the confirmation bias of investors holding or breaking.
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 in the early trade. Smart money is inactive.
For longer term, please see gold and silver ratings.
Oil
The momo crowd is aggressively selling 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
Small caps are tracing a pennant. This is bullish. ETF of interest is IWM.
German stocks are tracing a pennant. This is bullish. ETF of interest is EWG.
Brazilian stocks are tracing a wedge. This is bearish. ETF of interest is EWZ.
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. 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 weaker.
Gold futures are at $1739, silver futures are at $15.37, and oil futures are $12.61.
S&P 500 futures resistance levels are 2870, 2924 and 3000: support levels are 2785, 2714 and 2653.
DJIA futures are up 214 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 34% – 44% and short to medium-term hedges of 3% – 15% and short term hedges of 8% – 20%.
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