By Nigam Arora
The Federal Reserve on Tuesday announced an emergency interest-rate cut to counter the effects of the coronavirus on the economy.
Expect calls for more spending on the fiscal side to increase the deficit from a trillion-plus dollars. Where is the money going to come from? The answer is easy: Just borrow and add to the national debt.
Let’s explore where the stock market rally is going with the help of two charts.
Please click here for a long-term chart of the Dow Jones Industrial Average ETF /zigman2/quotes/208954582/composite DIA -0.02% , which tracks the Dow /zigman2/quotes/210598065/realtime DJIA -0.07% . For the sake of transparency, this chart was previously published, and no changes have been made.
Please click here for an intraday chart of the Dow ETF.
Note the following:
• The first chart, with a monthly time frame, gives you the long-term perspective.
• The second chart, with a five-minute time frame, gives you a very short-term perspective.
• The first chart shows that on a monthly basis, RSI (relative strength index) is not oversold. This indicates there is more room to the downside.
• The first chart shows three Arora buy signals, 57% protection of Arora long-term portfolios when the market was at its high, a short-term trade on inverse ETF /zigman2/quotes/202448809/composite SQQQ -4.07% or a short sale on Nasdaq 100 ETF /zigman2/quotes/208575548/composite QQQ +1.47% and, most importantly, a long-term trendline. The chart shows that the stock market is still levitating significantly above the long-term trendline. This indicates there is more downside potential.
• The second chart shows the composition of Monday’s 1,294-point Dow rally, the biggest one-day point gain ever.
• The second chart shows the first short squeeze leg.
• The second chart shows a critical event around 2:45 p.m. Monday. The stock market broke down below the micro support. After stops were taken out, the momentum reversed, and the breakdown failed. This led to a breakout, as shown on the chart.