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At a time when multiple whistleblowers may be emerging against President Trump, economic data are showing weakness, a grim earnings season is ahead and professional investors are selling stocks, Trump brilliantly slayed the bears and made bulls behave like puppy dogs.
Think what you may of Trump, but the evidence is overwhelming that he is a brilliant market timer. In my 30-plus years in the markets, I have never seen anybody else as good at market timing as Trump. Let’s first explore this issue with the help of a chart and then address two important questions that prudent investors ought to be asking but nobody is talking about.
Please click here for an annotated chart of S&P 500 ETF SPY, +0.02%.
Note the following:
• Broadly speaking, economic indicators can be divided into three types: leading, coincident and lagging.
• Investors who are interested in getting ahead of the curve ought to pay most attention to the leading indicators. (The Arora Report’s adaptive ZYX Asset Allocation Model puts a heavier weighting on leading economic indicators.)
• In plain English, adaptive means that the model automatically changes itself with new conditions. Investors ought to consider adaptive models, not static models. Investors are often lulled into a false sense of security by using static models that performed well in the past and then get burned when such models fail to perform. Obvious examples are 2000 and 2008.
• At present, the probability of a recession is increasing. There are not many things about the stock market that anyone, including me, can say with certainty. As a red flag for prudent investors, I can say with certainty that a recession is not priced into current stock prices.
• The chart shows that when weaker-than-expected ISM manufacturing data were released, the stock market fell. The ISM manufacturing index is a leading indicator.
• Manufacturing is only a small part of the U.S. economy. More important is ISM non-manufacturing data.
• The ISM non-manufacturing data were also weaker than expected.
• ISM non-manufacturing data are an important leading indicator and deserve a heavy weighting in any model.
• The chart shows that long-term Arora portfolios are up to 62% protected at this time.
• The chart shows the Arora signal to start a short-term trade by short-selling Nasdaq 100 ETF QQQ, +0.29%. For those who could not short-sell but are aggressive, a signal was given to buy leveraged inverse ETF SQQQ, -0.83% for a short-term trade. This inverse ETF rises when the stock market falls.
• Both short-term trades have been profitable.
• Investors ought to consider following Arora’s 18th Law of Investing and Trading: “Diversifying by time frames can provide a consistent stream of profits.”
• The chart shows that near the lows, Trump made positive comments about a trade deal with China and invited China to investigate rival Joe Biden.
• The chart shows that the market reversed and ended the day higher on Trump’s comments.
• In keeping with Trump’s highly successful pattern of reversing the falling market to the upside at critical junctions, this time Trump’s timing was impeccable, as shown on the chart.
• The chart shows that there was heavy volume on the second down day but light volume on the second up day. This indicates conviction on the downside but lack of conviction on the upside. Of course, the market, in the short term, made fools of those with conviction.
• The chart shows the release of the jobs report. The jobs report is a lagging indicator.
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Trump’s impeccable timing
Trump’s impeccable timing is obvious from the following:
• The chart shows that when Trump’s comment came, the relative strength index (RSI) was oversold and moving up. From a momentum perspective, this was the perfect spot to turn the stock market around.
• The Arora Report recently wrote before the market reversal to the upside at a time when the market was falling: “The chart shows that RSI is oversold. In plain English, this means that the stock market can easily stage a big jump up even on the slightest bit of good news.”
• The chart shows that when Trump’s comment came, the stock market was hitting the top of the support zone. From the perspective of support, this was a perfect spot to turn the stock market around.
• Support zones are invaluable to investors. To learn about support zones, please see “Why you need to understand support zones in the stock market” and “The most important indicator in the stock market today is support zones.”
• The volume in the stock market was heavy on the prior day. This indicated that there was real danger of a significant drop in the stock market.
• According to algorithms at The Arora Report, short sellers were finally aggressively pushing the pedal to the downside as a number of indicators were showing more weakness to come in the stock market.
• The stock market was perfectly positioned to cause a short squeeze.
• In a short squeeze, short sellers feel compelled to buy to cover.
• Buying by short sellers in the stock market is artificial buying.
• The chart shows two different zones where short squeezes in the stock market were the major reasons for the aggressive move up in the stock market.
• According to algorithms at The Arora Report, about one-third of the up move on Trump’s comment was attributable to short covering of stocks.
Please see “Trump talks up the stock market, but this chart tells the real story” and “Trump claims the stock market would be higher if he hadn’t confronted China — is he right?”
Two important questions
Here are the two important questions that prudent investors ought to ask themselves:
• Market timing is hard. History is littered with famous market timers first calling it right and then getting it wrong. How long will Trump’s impressive streak continue? Of course, as the holder of the most powerful job in the world, Trump has thousands of times more power than the typical market timer.
In addition to watching stock market indices and internals, investors ought to watch the shares of Apple AAPL, +0.85%. Apple gets a big part of its sales from China. Apple’s profits in the United States are vulnerable to tariffs because most of its products are imported from China. If it gets worse between the U.S. and China, the Chinese government may choose to retaliate against Apple.
In such a scenario, Apple stock could easily fall $100. Of course, nobody on Wall Street is talking about such a scenario. Investors ought to be aware that Wall Street’s job is to stay in the good graces of large companies such as Apple and persuade investors to continue sending their money to Wall Street.
In addition to Apple, investors ought to carefully watch popular large-cap stocks such as Amazon AMZN, +0.42%, Facebook FB, +0.28%, Google GOOG, +0.70% GOOGL, +0.58% and Microsoft MSFT, -0.21%. Semiconductors are often leading indicators; investors ought to watch semiconductor stocks such as AMD AMD, +1.93%, Micron Technology MU, -0.20%, INTC, +0.04% and Nvidia NVDA, +3.29%.
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 Nigam@TheAroraReport.com.