The stock market is plunging.
Buying opportunities are developing, but it’s not the right time, with the exception of “nibbles” by those who meet the protection-band criteria. Please read “Stock market investors are asking ‘should I buy or sell?’ Here’s how to decide.”
Last week I warned you that a watershed moment was on the way if stocks couldn’t hold a level that I had provided. Alas, the level has not held. A bigger watershed moment is on the way if the next level doesn’t hold. Please see “A watershed moment is on the way if stocks can’t hold this level.”
Let’s explore with the help of two charts.
Two charts
Please click here for an annotated chart of the Dow Jones Industrial Average ETF DIA, +9.43%, which tracks the Dow DJIA, +9.36% .
Please click here for an annotated chart of S&P 500 ETF SPY, +8.55% , which represents the S&P 500 Index SPX, +9.29% . For the sake of transparency, this chart was previously published and no changes have been made.
Note the following:
• The first chart shows two support zones. The top support zone is marked “support zone.” The bottom support zone is marked “mother of support zones.”
• If the top support zone does not hold, a bigger watershed event is on its way.
• The chart shows the Arora signal to buy the inverse ETF SQQQ, -28.35% or short sell the Nasdaq 100 ETF QQQ, +8.47% before the big drop in the stock market.
• The second chart shows the prior support zone that has been broken.
• The second chart shows the “program selling” point where the selling accelerated. This program-selling point and the second chart were provided well in advance before this leg of the stock market drop, giving investors plenty of time to protect themselves.
• The first chart shows that RSI (relative strength index) is very oversold. This indicates that the slightest bit of good news could cause a rip-roaring rally.
• The first chart shows that volume is still not high. This indicates complacency among investors. In more practical terms, it means there is more downside to come, perhaps after a rally that fails.
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.
Do’s and don’ts
Here are helpful pointers if your portfolios aren’t protected as much as they should be.
• Do not panic.
• Develop a plan. Hope is not a good strategy.
• Bear markets have some of the sharpest rallies.
• Use the rallies to build protection.
• There is potential for good news in many ways.
• Start with Arora’s Third Law of Investing and Trading: “Making investing and trading decisions based on probabilities is the only realistic and profitable approach.”
• The support zone shown on the first chart has about a 30% probability of holding.
• The mother of support zones shown on the first chart has an 80% probability of holding.
Popular stocks
At The Arora Report we are receiving questions on popular stocks. Here are the brief answers:
• Apple AAPL, +11.98% is not likely to see lasting damage in the developed world but may see lasting damage in the developing world. In the developed world, iPhone sales will only be deferred and not lost. In the developing world, some iPhone sales will be lost forever.
• Facebook FB, +10.23% and Alphabet GOOG, +9.40% GOOGL, +9.24% will lose some advertising revenue but will benefit by the higher use of their services.
• Amazon AMZN, +6.46% will benefit from more deliveries to the home. However, investors should work out the numbers based on a scenario of the coronavirus spreading to Amazon warehouses and Amazon being unable to deliver.
• Tesla TSLA, -2.49% may be negatively affected by lower oil prices.
• Intel INTC, +19.52% , AMD AMD, +12.54% and Microsoft MSFT, +14.22% will see sales deferred but not lost.
Answers to your questions
Answers to many of your questions are already in my previous writings this year. You can access some of them by clicking here.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at [email protected].
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