The U.S. stock market is at an inflection point, as all eyes are on a potential trade deal with China. There’s a March 1 deadline for reaching an agreement.
How should prudent investors navigate this situation? It may not be as straightforward as you think. Let’s examine the issue with the help of a chart.
Chart
Please click here for a chart of S&P 500 ETF SPY. Similar conclusions can be drawn from charts of the Dow Jones Industrial Average DJIA, Nasdaq 100 ETF QQQ and small-cap ETF IWM. Please note the following:
• The chart shows that the market is up against the resistance zone.
• Please click here to see the last buy signal given by the ZYX Asset Allocation Model. The chart shows both the long term Arora buy signal and also the buy signal for a short-term trade. For the sake of transparency, this chart is exactly the same as previously published without any changes.
• The Arora Report had been projecting that earnings growth was about to slow. However, the market was slow to recognize this fact.
• The swoon in December was, in part, due to wider recognition that earnings growth was about to slow.
• As shown on the chart, the rally this year is due to the Federal Reserve doing an about-face and becoming dovish.
• RSI (relative strength index) shows that the market is overbought. Overbought markets are vulnerable to pullbacks.
• The pattern that RSI has traced often leads to strength after a pullback.
• Volume on the rally is lower than the volume during the swoon. On the surface this seems negative. However, the volume is higher than it was during the rally of July to September of last year. This is positive.
• It makes sense to look at popular tech stocks such as Apple AAPL, Facebook FB, Amazon AMZN and AMD AMD. Those stocks have rallied strongly. Even though momo crowd money flows remain strong, it is of note that smart money flows are weak relative to the strength of the rally. Please see “If you own Apple, Amazon, Facebook or AMD, look out below.”
Chances for a good trade deal
Let’s start with Arora’s Second Law of Investing: No one knows with certainty what is going to happen next. The only reasonable approach investors can take is to look at probabilities of various scenarios….Read more at MarketWatch.
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