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President Trump has called on the Federal Reserve's "Boneheads" to cut interest rates. Now, Trump has more ammunition against the Fed thanks to the new plans of "Super Mario" – the president of the European Central Bank, Mario Draghi.
Draghi is known as Super Mario for adopting an extremely stimulating monetary policy in order to get Europe out of the imminent fiscal disaster. On Thursday, the ECB announced another rate cut and more bond purchases, a move that pushed up US stocks.
In addition, there are rumors about a tentative trade agreement with China – but with the news of the trade deal, never trust the first reports. Whatever it is, Trump is determined to go public. Please see "Trump's China gambit is working at the moment – this graph tells the story" and "Trump says the stock market would be higher if he did not face China – is he right?"
Let's draw this new set using two graphs.
graphics
Please click here to view an annotated table of long-term bond ETFs.
TLT -0.66%.
Click here to view the annotated table of the S & P 500 ETF.
SPY, + 0.35%,
which reflects the S & P 500 index
SPX, + 0.29%.
For the sake of transparency, this table has been published previously and no changes have been made.
Note the following points:
• The first chart shows that bonds have traced a parabolic movement on fears of recession.
• The first chart shows that the Arora report gave a sell signal on the TLT at a time when almost everyone was expecting a raise. In hindsight, the signal from the Arora report to sell short bonds proved to be very effective. At the same time, a signal was given to buy reverse bond ETFs
TBT + 1.22%
for those who could not sell short. Both trades are now very profitable.
• The first graph shows that at a time when bonds were skyrocketing, the Relative Strength Index (RSI) showed divergences.
• The second graph shows a megaphone pattern. At the time of the first publication of the chart, many gurus and media were using it to proclaim that the stock market was about to fall out of bed. The Arora report took the opposite position, saying the upward movement was possible. This call turned out to be correct. Please refer to "A megaphone model in the stock market looks scary – but there is no reason to fear."
• Gold ETF
GLD, + 0.21%,
money ETF
SLV, -0.18%
and gold miner ETF
GDX, -1.62%
move higher on the news of the ECB.
• Note that the stock market is now overbought in the short term. Overbought markets tend to be vulnerable.
• Apple
AAPL, -0.23%
stock rose after the introduction of new iPhones and a lower price than expected on its streaming service.
• The carnage in cloud stocks, such as CrowdStrike
CRWD, + 0.80%,
Zoom Video Communications
ZM, + 1.02%,
Okta
OKTA, -0.20%
and Twilio
TWLO, + 3.08%,
temporarily stopped.
• The algorithms of The Arora Report show signs of relaxation. Michaels Cos is an example of the value of low-pressure retail stocks.
MIK, -5.13%,
J.C. Penney
JCP, -11.20%,
Signet Jewelers
GIS, + 1.46%,
Rite Aid
RAD -21.28%
and best buy
BBY, + 0.03%.
Comstock Resources is an example of energy stocks that have experienced short-term compression.
CRK, -2.52%,
Helmerich & Payne
HP -4.43%
and Halliburton
HAL -1.50%.
• Semiconductor actions such as Intel
INTC, + 0.42%,
AMD
AMD + 1.51%
and Micron technology
MU, -0.08%
not only did not register downward in the cloud markets, but they rallied in the hope of successfully negotiating trade with China.
• Another sign of strength in the stock market is that, despite government investigations, Facebook shares
FB -0.54%,
GOOG, + 1.15%
GOOGL, + 1.23%
and Amazon
AMZN, + 1.13%
have not reacted downward.
Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.
What to do now
Just remember that the stock market is overbought and vulnerable, and seasonality is negative. On the other hand, trade negotiations are progressing. In addition, a breakthrough to new heights will prompt the Momo (momentum) crowd to buy stocks more aggressively; the momo crowd is already buying shares. Note that smart money is selling slightly in strength. The Bulls are hoping the Fed will cut interest rates. So be careful below if the Fed does not reduce interest rates.
In these market conditions, investors must follow a proven adaptation model that has proven successful in both bull and bear markets, such as ZYX asset allocation models. In general, the model is cautiously optimistic and protects the portfolio with hedges and a good amount of cash.
Do not forget that if the market plunges as it often does between September and November, you will not be able to take advantage of the opportunities available to you if you do not have enough cash.
Disclosure: Subscribers to the Arora Report may hold positions in the securities mentioned in this article or at any time. Nigam Arora is an investor, engineer and nuclear physicist who founded two of the 500 fastest growing companies. He is the founder of The Arora Report, which publishes four letters of information. Nigam can be reached at the following address: [email protected].
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