By Nigam Arora
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.
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 /zigman2/quotes/208575548/composite QQQ -0.13% . For those who could not short-sell but are aggressive, a signal was given to buy leveraged inverse ETF /zigman2/quotes/202448809/composite SQQQ +0.28% 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.