By Nigam Arora
• Semiconductor stocks have been the leaders on the upside. Consider watching stocks such as AMD /zigman2/quotes/208144392/composite AMD -2.40% , Micron Technology /zigman2/quotes/205710729/composite MU +1.44% and Nvidia /zigman2/quotes/200467500/composite NVDA -0.28% for clues.
• Apple /zigman2/quotes/202934861/composite AAPL +0.25% has major exposure to China. Watch for a decisive break of the $300 level.
• Investors have been hiding in large-cap tech stocks such as Amazon /zigman2/quotes/210331248/composite AMZN +0.55% , Microsoft /zigman2/quotes/207732364/composite MSFT -0.30% and Facebook /zigman2/quotes/205064656/composite FB +0.23% . Consider watching these stocks to see if they break their support levels. Please see “Stock market generals are marching ahead, but the troops aren’t following.”
• The move up in gold has been very strong since the recent breakout. Consider watching gold ETF SPDR Gold Shares /zigman2/quotes/200593176/composite GLD -0.26% , silver ETF iShares Silver Trust /zigman2/quotes/205744453/composite SLV +0.29% and gold miner ETF VanEck Vectors Gold Miners ETF /zigman2/quotes/206399889/composite GDX -1.01% . Please see “Gold breakout’s while the stock market is rising should concern investors.”
• The chart shows the Arora signal to start a short-term trade to buy inverse leveraged Nasdaq 100 ETF /zigman2/quotes/202448809/composite SQQQ -2.22% and for those who can short-sell, to do so using Nasdaq 100 ETF /zigman2/quotes/208575548/composite QQQ +0.68% . An inverse ETF goes up when the stock market goes down.
Down the elevator
There is an old saying that stocks go up the stairs but come down the elevator. A big, quick drop in the stock market is not unusual, although investors who have gotten used to recently overly bullish behavior in the market may not remember the true nature of the stock market.
Long term and short term
Investors can increase their returns and lower their risks by diversifying their portfolios among time frames. That way, if investments do not work out in one time frame, they tend to work out in a different time frame.
Even as coronavirus fears are spreading across the stock market, investors are still too complacent. Greed is still overwhelming fear. Please see “Extreme greed in the stock market is producing a bad setup as earnings season starts.”
Many investors simply do not believe that the stock market can go down with the Federal Reserve willing to do whatever it takes to prop up the stock market. Please see “Stock market investors’ motto — ‘in central banks we trust’ — is still working.” Even among those who accept that the stock market can fall, many believe any downturn will be short-lived and the best way is to ride it out.
I have been a student of the stock market and an investor for over three decades. My observation is that what investors plan and say when the stock market trend is still up is very different from what investors do when the stock market falls. It is best to protect long-term portfolios with cash and hedges in a judicious manner. As the chart shows, The Arora Report’s long-term portfolios are up to 57% protected.
Investors ought to pay attention to the fact that even Warren Buffett uses the verb “will” to describe drops in the stock market of 50% or even greater in his carefully written letter.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. <INTERNAL-PAGE URL="/author/nigam-arora">Nigam Arora</INTERNAL-PAGE> 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.