With the U.S. stock market at all-time highs again, it makes sense to pay attention to what key charts are saying.
Let’s examine the issue. Please click here for a chart of S&P 500 ETF
SPY, -0.22%
which represents the benchmark S&P 500 Index
SPX, -0.22%
Please note the following:
• The chart shows volume is low, a negative. A breakout on higher volume indicates conviction.
• The relative strength index (RSI) is overbought. When markets are overbought, they are vulnerable and tend to pull back.
• The chart shows the pattern that RSI has traced is positive. That indicates a pullback should be bought unless something else changes.
• The chart shows that the latest rise was triggered by earnings that were better than the consensus and whisper numbers. Of note is that immediately before the latest rise in the stock market were earnings from Dow Jones Industrial Average
DJIA, -0.22%
components Coca-Cola
KO, -0.48%
United Technologies
UTX, -0.31%
Verizon
VZ, -0.12%
and Procter & Gamble
PG, +0.51%
• Semiconductors have been the leaders in this market increase. Texas Instruments
TXN, +1.76%
a major semiconductor company, indicated in its conference call that demand continues to slow across most markets. The data we gather at The Arora Report has been showing the same thing. However, semiconductor stocks have been running up on hopes that the cycle has bottomed, even though there is no good confirmation data.
• Investors ought to watch semiconductor stocks such as Intel
INTC, -0.10%
AMD
AMD, +1.75%
Micron Technology
MU, +0.61%
and Applied Materials
AMAT, +1.44%
as indicators of where the market may go.
• Popular large-cap stocks such as Amazon
AMZN, -1.14%
Apple
AAPL, -0.15%
Facebook
FB, -0.65%
and Microsoft
MSFT, -0.34%
continue to show patterns that indicate further up moves.
• At The Arora Report we monitor leading economic indicators from 23 countries. Those indicators have improved but they don’t rule out slowing global economic growth. That is still a risk factor.
• So far earnings are coming in better than expected, but a large number of important earnings are still ahead. That is a major risk factor.
• The chart shows that The Arora Report gave a buy signal on Christmas Eve, which has turned out to be the low of the current cycle.
• The fuel for the market rise since The Arora Report buy signal has been the easing monetary policy from central banks.
• Now there are indications that China may stop further easing its monetary policy. All markets are connected, and if the Chinese stop easing, that may put a brake on the rise.
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What to do now
At The Arora Report we depend on the ZYX Asset Allocation Model with 10 inputs. Please click here to see the 10 inputs. We provide specific cash levels, hedge levels, positions to hold, positions to sell and new positions to add.
Right now the model is bullish, but investors should still hold a fair amount of cash and small hedges because the risks have not totally abated and the market is overbought. Investors ought to take advantage of new opportunities as they arise from reported earnings.
Unless something changes, pullbacks should be bought.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora 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.
Source : MTV
