Bulls are running in the stock market as the weak hands are flushed out

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After a brief pause, the bulls in the stock market are running again.

Adding a kick to their step: A flushing out of weak hands, a potential coronavirus breakthrough, Iowa political chaos and the love (by investors) of President Trump.

Let’s examine the issue with the help of a chart.


Please click here for an annotated chart of S&P 500 ETF SPY, +1.14%,  which tracks the benchmark S&P 500 Index SPX, +1.13%.

Note the following:

• The VUD indicator is the most sensitive measure of net supply and demand in real time. On the chart, the VUD indicator is shown with orange when there is net selling and with green when there is net buying.

• Focus on the big orange area in the lower pane toward the right. Notice that the big orange spike occurred right at the bottom in the stock market.

• Notice the highest green spike before the stock market started falling.

• Notice the difference in the magnitude of the green and orange areas marked on the chart.

• The sum total of the foregoing is that the weak hands have been flushed out. After this happens, there tends to be a strong two- to three-day rally.

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Earnings season

Earnings season is in full swing. Among the big-cap popular tech stocks, Amazon AMZN, -0.48%, Apple AAPL, +0.82% and Microsoft MSFT, -0.12% reported stellar earnings. However, GOOG, +0.08% GOOGL, +0.04% and Facebook FB, +0.13% reported mixed earnings. Keep in mind that, in this market, “bad” news is “good” news.

Semiconductors have been leading indicators. Intel INTC, +2.87% and Western Digital WDC, -0.47% reported good earnings, and AMD AMD, +0.79%,  not so good. Please see “Apple may have had blowout earnings, but these risks to the stock have emerged” and “How and when prudent investors ought to buy these 5G stocks.”

Tesla TSLA, -17.18% experienced a massive short squeeze after game-changing earnings. Please see “A perfect combination for Tesla’s stock gains — future fantasies, short selling and FOMO.”

Coronavirus breakthrough

A team led by Li Lanjuan, a leading scientist in China, is reporting a breakthrough in the treatment of coronavirus. Two drugs, Abidol and Darunavir, have been shown to inhibit the coronavirus in vitro. Stock futures jumped on the news, and the main benchmarks are in the green today.

Iowa chaos

The chaos in Iowa on reporting results from the caucus continues to add to the bullishness in the stock market. If Democrats can’t even manage technology to report results in a small state, they cannot possibly beat Trump, who has a massive data machine — so the story goes.

Love for Trump

Stock market investors love Trump, especially after Tuesday night’s State of the Union speech, in which he boasted about the economy. Speaker of the House Nancy Pelosi, at the end, dramatically ripped up her copy of Trump’s speech in an effort to make a statement.

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.