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

Premature Celebration

The sharp rally in the stock market after hitting the low on coronavirus disruption has in large part been due to a vicious short squeeze and related mechanics.

The short squeeze had finally exhausted itself; without any other news, this would have resulted in significant downward pressure on the stock market. But stock market bears ran out of luck when a report surfaced that an antiviral drug remdesivir from Gilead (GILD) showed promise in treating coronavirus patients. This is why investors may consider following the simple principle that I have learned in my over 30 years in the markets – Neither be a bull nor a bear. Over a period of time, the practical way to use this principle has become encapsulated in Arora’s Fifth Law of Investing and Trading: You need to be in neutral and set aside your opinions as well as biases to see the true message from the markets.

Back on March 23, 2020, which has turned out to be the stock market low and everybody was selling, I wrote, ‘Many antivirals are being tested, and significantly good news from any one of the major drugs trials will likely cause a 5,000-point rally in the Dow. Other indexes, of course, would rise too’. This shows the power and benefits for the stock market investor of doing scenario analysis in advance.

Stock market bull’s declaration of victory on anecdotal data about Gilead’s remdesivir is premature, more later on this. However the stock market reaction shows that a 5,000 Dow point rally is highly probable if a true cure is found.

No stock market investor should underestimate the risks from coronavirus that are still ahead. There is a good logical way to navigate the stock market in this volatile coronavirus situation that has proven itself by significantly outperforming the market and protecting investors from big losses at the same time ever since the January 22, 2020, call from The Arora Report of potential stock market drop ahead due to coronavirus. I repeated this call several times as investors continued to buy stocks until February 19, 2020 stock market top – this advanced warning gave investors plenty of time to protect themselves. Let’s explore with the help of three charts.

Three charts

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

Please click here for an annotate chart of Gilead (GILD).

Please click here for an annotated chart of S&P 500 futures (Parris symbol) that represents the 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 be the starting point of all analysis.
• The second and the third chart are 15 minute charts to help investors focus on what will happen in the stock market if a true cure is found.
• The first chart shows that in the absence of more good news, this stock market is primed for a significant pullback.
• The second chart shows the time in the afterhours when the Gilead news first appeared. Initially the reaction was muted because the analysts and the smart money took a critical look at the news and knew that there were limitations and celebration was premature.
• A little bit later when a TV network reported the news, Gilead stock took off for a big move as shown on the chart. It is no secret that this stock market is controlled by the momo (momentum) crowd and the momo crowd is not known for deep analysis. The Arora Report signal to buy Gilead stock to take advantage of the momo crowd was made for super aggressive investors only.
• The third chart is the most instructive. It shows a rally in the futures equivalent of 850 Dow points on Gilead coronavirus news.
• The second and the third chart show the VUD indicator. The VUD indicator is the most sensitive measure of net supply demand in real time.
• VUD indicator shows strong net demand not only for Gilead stock but for rapidly pouring new money into the stock market.

Ray of hope but limitations

Gilead’s remdesivir provides a ray of hope. The report looks at patients in a Chicago hospital and concludes that coronavirus patients receiving remdesivir had rapid recoveries. However the celebration is premature. The patients in Chicago are only a small part of a multicenter trial. The data released is uncontrolled and anecdotal. We need to wait for the data from the placebo controlled double-blinded study.

The second and third charts linked above show that currently too much euphoria is prevailing in the stock market and there is a lack of rigorous analysis. This is a danger signal for the prudent investors in the stock market.

In our analysis, the most likely scenario is that remdesivir will be helpful but not a first line treatment for coronavirus.

Risks remain

Significant risks remain in the stock market both to the upside and the downside. The very positive sentiment in popular stocks such as Amazon (AMZN), Microsoft (MSFT), AMD (AMD) and Tesla (TSLA) is bordering on a contrary ‘sell’ signal. The only rational logical way for stock market investors is to follow Arora’s third Law of Trading and Investing: Making investing and trading decisions based on probabilities is the only realistic and profitable approach.

Start with the protection bands. Depending upon where you belong in the protection bands, separate out strategic decisions from tactical decision for buying and selling in the stock market. If you meet the protection band criteria strategically buy stocks and ETFs that fall into the buy zones. If you do not meet the protection criteria, do some selling into the strength. Make tactical decisions by nibbling when the signals are given.

Momo Crowd And Smart Money In Stocks

The momo crowd is extremely aggressively buying stocks.  Smart money is selling into the strength.

Gold

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

For longer term, please see gold and silver ratings.

Oil

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

For longer term, please see oil ratings.

Marijuana

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

Technical Patterns

None of note.

This is powerful information and many investors use this to enter trades in addition to our official signals.  Here are the three most common uses: 1) Short-term trades in ETFs  2) Decisions to trim or add to long-term positions, and 3) New option trades. These should be used judiciously only in conjunction with macro, fundamental and quantitative indicators.  To learn more please click here.

Markets

Our very, very short-term early stock market indicator is positive first and then for the market to reverse. Expect the market to open much 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 $1719, silver futures are at $15.44, and oil futures are $24.66.

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

DJIA futures are up 660 points

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

No. 1 Mistake

In the wake of coronavirus related volatility in the stock market, investors are asking, “Is the economic data showing that there will be a depression?” The number one mistake I see investors make as they try to figure out the answers to this question is that they are mostly focused on one dimension of the two dimension problem. The second dimension that most investors are not properly focused on is the time frame or the duration. As an example, the new jobless claims came at 5.245 million vs. the consensus of 5.0 million. This is a terrible number. In our analysis at The Arora Report, the number of initial jobless claims is in the process of peaking in the near term. In isolation, at this time it can be considered positive for the stock market. However, in a longer time frame, investors also need to consider the possibility of a second wave of job losses if opening the economy takes longer. Let’s explore with the help of a chart.

Two charts

Please click here for an annotated chart of the SPDR Dow Jones Industrial Average ETF (DIA) that 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 stock market index S&P 500 (SPX).

Note the following:

• The first chart is a monthly chart giving investors a long term perspective.
• The second chart is a daily chart giving investors a short term perspective.
• Both charts show RSI. RSI is an indicator of internal momentum of the stock market.
• The first chart shows that RSI is barely poking its head over the oversold level.
• The second chart shows that RSI is overbought.
• Those with less experience may ask, “How come RSI is both overbought and almost oversold at the same time?” This is a wrong question because it omits the second dimension of the time frame. RSI is almost oversold on the long term basis but is overbought on a short term basis.
• The second chart shows two moving averages.
• The moving average shown in green shows that the stock market trend is up. The moving average marked in red shows the stock market trend is down. Both are right at the same time because one is over five days and the other is over 200 days.

Depression

Less experienced investors are looking at the economic data and projecting a depression. It is true that economic numbers are depression like. However, stock market conclusions should not be based on the data we are seeing now because the second dimension of duration is missing. It is conceivable that a few months from now economic data may look much better.

The correct way to analyze the impact of economic data on the stock market at this time is to not focus on the depth but to focus on the duration.

The Free Lunch

Wall Street advocates diversification by sectors and geographies. Nobody talks about another free lunch for the stock market investors that is there just for the taking – diversification by time frames. If you diversify by time frames, you can be more selective in your trades and investments. For example, stocks like Zoom Video Communications (ZM), Teladoc (TDOC) and Slack Technologies (WORK) are very popular now because people are staying home. These stocks are likely to stay popular until the economy starts opening up. At that time investors will start focusing on how expensive these stocks are. For this reason, these stocks may provide good short term trades but it is difficult to make a long term investment case due to present valuations and the competition. For example, Slack faces stiff competition from Microsoft (MSFT). Zoom will start facing more competition from Alphabet (GOOG) (GOOGL) and Cisco (CSCO). Amazon (AMZN) stock is hitting new highs as consumers depend more on home deliveries; some of this effect will persist to Amazon’s benefit. However, in the process Walmart (WMT) is becoming a stronger competitor and when the economy opens up, Amazon’s volume will drop.

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 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 acting like a yo-yo in the early trade.  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 expect the market to open higher.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down and bonds are ticking up.

The dollar is  stronger.

Gold futures are at $1747, silver futures are at $15.64, and oil futures are $20.12.

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

DJIA futures are up 102  points

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

Retail Sales

Retail Sales Ex-auto came at -4.5% vs. -7.6% consensus.  These numbers are much better than expectations. This indicates that the consumer has continued to spend.

Prepare For The Biggest Rally

The stock market has rallied strongly on coronavirus curve flattening. Imagine the magnitude of stock market rally if the coronavirus is vanquished.

Trump has said that due to pent up demand, the economy will come back like nobody has ever seen. Our success at The Arora Report, in part, has been due to scenario analysis in advance. This is one of the reasons that The Arora Report was able to correctly call the drop ahead in the stock market due to coronavirus on January 22, 2020 and subsequently repeat the call several times while the stock market was still making new highs giving investors ample opportunities to protect their stock market portfolios. In our analysis at The Arora Report, there is a reasonable probability that the United States stock market may see the biggest rally ever post coronavirus. Many investors are asking if they should they jump all in. The answer is ‘no’ because the present rally is about 65% due to a short squeeze.  Investors should consider following an objective logical proven framework as we have been consistently describing  Let’s explore with the help of two charts.

Two Charts

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

Please click here for an annotated chart of Apple (AAPL) stock.

Note the following:

• The first chart shows that when the stock market fell, many stocks and ETFs fell in the Arora buy zones. These buy zones were given in advance when these stocks and ETFs were much higher. Investors who rigorously followed the buy zones were able to buy at prices often near the lows when the stock market dropped due to coronavirus.
• The second chart shows buy in Apple stock as it dipped into the Arora buy zone.
• The second chart shows that those who bought the stock in the buy zone now have very nice gains.
• The second chart shows that Apple is now right up against the trendline. This trendline should provide some resistance to further up move. Those who recently bought on the dip in the buy zone may consider taking partial profits or profits on the entire position depending upon the rest of their portfolio. Those who have been very long term holders of Apple stock like The Arora Report model portfolio where it has been held from $18.71, it is best to hold but make sure there are appropriate hedges.
• The second chart shows overshoot in Apple stock prices as the stock market benchmark index S&P 500 (SPX) hit new highs on February 19, 2020.   Typically such overshoots should be used to tactically lighten up.
• Investors should make a distinction between strategic calls and tactical calls. Strategic calls are for the long term. Tactical calls are for the short term.
• All buying decisions should be made in the context of protection bands. Protection bands are determined by adding cash to short term hedges and to short to medium term hedges. Those who are younger or aggressive may consider staying near the low end of the protection band. Those who are older or conservative may consider staying near the high end of the protection band for strategic decisions. Tactical decisions and short term trades can be outside the protection bands.

Momo Crowd And Smart Money In Stocks

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

Gold

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

For longer term, please see gold and silver ratings.

Oil

The momo crowd is selling oil on a negative report by IEA.   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 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 $1744, silver futures are at $15.69, and oil futures are $30.76.

S&P 500 futures resistance levels are 2785, 2870 and 2924: support levels are 2714, 2653 and 2600.

DJIA futures are down 572 points

WALL STREET WOULD HAVE YOU BELIEVE IT IS ‘SAFE’ TO GO BACK IN THE WATER – CORONAVIRUS DOESN’T MATTER