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Investor Alert

March 28, 2020, 2:13 p.m. EDT

To the investors gobbling up stocks: The intraweek rally attempt faces a better-than-even chance of failure

‘Capitulation’ among investors has not yet occurred

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By Nigam Arora


Getty Images

As investors ruminate over “buy” and “sell” decisions concerning their portfolios, there are two new developments. Let’s explore with the help of two charts.

Please click here for a chart of Dow Jones Industrial Average ETF /zigman2/quotes/208954582/composite DIA +2.19% , which tracks the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +2.17% .

Please click here for a chart of volatility ETF /zigman2/quotes/202248173/composite VXX -1.51% , which represents the volatility index (VIX) in the benchmark S&P 500 /zigman2/quotes/210599714/realtime SPX +1.23% .

Note the following:

• The first chart shows that The Arora Report gave a signal to buy leveraged inverse ETF /zigman2/quotes/202448809/composite SQQQ +0.51% or short-sell Nasdaq 100 ETF /zigman2/quotes/208575548/composite QQQ -0.27% , which represents the Nasdaq 100 Index, near the top of the stock market. An inverse ETF goes up when the stock market goes down.

• The first chart shows that the Arora Report gave a signal to book profits and exit the leveraged or short positions.

• The Arora Report is tactically reducing hedges.

• The first chart shows the stock market touched the top band of the “mother of support zones” and has now bounced. This is often the case for short-term tradeable bottoms.

• The first chart shows that the volume has gone higher but is still not high enough, considering the carnage in the stock market. This indicates that a capitulation has not yet occurred. A capitulation is often necessary for a lasting bottom.

• Without capitulation first, rallies tend to fail.

• The second chart shows a dramatic drop in VXX. This indicates that investors are nowhere as fearful as they were before. This is often considered a short-term buy signal for the stock market.

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Newfound bullishness

It is no secret that Wall Street loves President Trump. Trump, of course, wants to get re-elected. He has made the stock market a measure of his success.

Trump has started making noises that he wants to lift the coronavirus restrictions. It is understandable. Who wants to be confined to their home? It is not the coronavirus itself, but the response of the country to the coronavirus that is doing the damage to the economy and the stock market. The rich are still comfortable but ordinary investors with 401(k)s are suffering. Working-class people and small businesses are in trouble.

/zigman2/quotes/208954582/composite
US : U.S.: NYSE Arca
$ 250.25
+5.37 +2.19%
Volume: 4.87M
May 26, 2020 4:00p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
24,995.11
+529.95 +2.17%
Volume: 426.29M
May 26, 2020 5:20p
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/zigman2/quotes/202248173/composite
US : U.S.: Cboe BZX
$ 33.83
-0.52 -1.51%
Volume: 19.19M
May 26, 2020 4:00p
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/zigman2/quotes/210599714/realtime
US : S&P US
2,991.77
+36.32 +1.23%
Volume: 3.36B
May 26, 2020 5:20p
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/zigman2/quotes/202448809/composite
US : U.S.: Nasdaq
$ 9.92
+0.05 +0.51%
Volume: 50.30M
May 26, 2020 4:00p
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/zigman2/quotes/208575548/composite
US : U.S.: Nasdaq
$ 229.04
-0.62 -0.27%
Volume: 33.06M
May 26, 2020 4:00p
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