Investor Alert

Oct. 2, 2019, 4:21 p.m. EDT

Another alarm rings for the stock market, but there’s no reason to panic

The manufacturing report was dismal, but more important is the health of service industries

Watchlist Relevance

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    SPDR Dow Jones Industrial Average ETF Trust (DIA)
  • X
    Dow Jones Industrial Average (DJIA)
  • X
    Invesco QQQ Trust Series I (QQQ)

or Cancel Already have a watchlist? Log In

By Nigam Arora

Getty Images

Another alarm rang for the stock market when a survey of purchasing managers of American factories fell to a level last seen during the Great Recession.

Is this a reason to panic? Let’s explore with the help of a chart.


Please click here for an annotated chart of a Dow ETF /zigman2/quotes/208954582/composite DIA +2.70% , which mirrors the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +2.68% .

Note the following:

• The chart shows when September’s ISM manufacturing data were released. The index came in at 47.8%. A number less than 50% indicates contraction.

• The chart shows that the stock market fell after the ISM data were released.

• The chart shows the Arora signal to start a short-term trade by short-selling Nasdaq 100 ETF /zigman2/quotes/208575548/composite QQQ +3.43% . For those who could not short but are aggressive, a signal was given to buy leveraged inverse ETF /zigman2/quotes/202448809/composite SQQQ -10.27% for a short-term trade. The ETF rises when the stock market falls.

• Both short-term trades are profitable, as of this writing. Partial profits have been taken on them.

• The chart shows that long-term Arora portfolios are up to 62% protected at this time. The protection is reviewed daily.

• Under these market conditions, investors ought to consider Arora’s 18th Law of Investing and Trading: “Diversifying by time frames provides a consistent stream of profits.”

• The chart shows that the relative strength index (RSI) is oversold. In plain English, this means that the stock market can easily stage a big jump up on even the slightest bit of good news. The good news may come from data related to services.

• The chart shows that volume did not jump during the selloff. This indicates that this was not a high-conviction selloff.

• Investors should pay special attention to the word “manufacturing.” The data were related to manufacturing. Manufacturing is only a small part of the U.S. economy.

• There have been previous instances when this manufacturing data indicated a recession but there subsequently was none, and the stock market went on to new highs.

US : U.S.: NYSE Arca
$ 315.02
+8.28 +2.70%
Volume: 3.31M
June 24, 2022 4:00p
US : Dow Jones Global
+823.32 +2.68%
Volume: 470.38M
June 24, 2022 5:05p
US : U.S.: Nasdaq
$ 294.61
+9.76 +3.43%
Volume: 58.42M
June 24, 2022 4:15p
US : U.S.: Nasdaq
$ 51.01
-5.84 -10.27%
Volume: 86.70M
June 24, 2022 4:15p
1 2
This Story has 0 Comments
Be the first to comment
More News In

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.