In the 1880s, a partner dance called the tango originated in Argentina. Now U.S. President Trump and President Xi of China have orchestrated a successful tango at the G-20 meeting in Buenos Aires calling for a truce in the trade war.
Is foresight more valuable than hindsight, especially to stock market investors? The week before the positive news, we wrote in the Arora Reportâs Morning Capsule: âBoth sides want a deal. The probability of the market going higher on Monday (after the meeting) is fairly high.â Many were predicting a failure in Argentina, and some expected a big decline in the stock market.
There is now a bullish technical pattern developing in the stock market. Letâs examine the issue with the help of a chart.
Please click here for an annotated chart of S&P 500 ETF
A similar conclusion can be drawn from the chart of the Dow Jones Industrial Average
but the charts of Nasdaq 100 ETF
and small-cap ETF
look different. Please note the following from the chart:
â¢ The chart shows the left shoulder, the head and the right shoulder.
â¢ The chart shows the neckline.
â¢ The chart is showing the potential formation of an inverse head-and-shoulders pattern. This is bullish if the pattern actually forms. If the pattern fails, that will be of concern.
â¢ The pattern will be complete if the neckline is broken to the upside.
â¢ The chart also shows the resistance zone.
â¢ The resistance zone is not that far away. This indicates some caution.
â¢ The chart also shows that RSI (relative strength index) is entering the overbought region. This also indicates some caution.
â¢ So far the volume has not been what I would have liked for a long-term sustained rally.
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.
Several investors have noticed that lately I have been emphasizing special situations. Those who do not subscribe to The Arora Report are asking for examples. Here is an example: On Nov. 16, The Arora Report gave a buy signal on Tesaro
with an average buy price of $34.61. The Arora Report gives targets at the time of issuing a buy signal. On Nov. 16, when the stock was trading in $30s, we wrote: âIt will not be surprising to see a buyout north of $75.â
Ten trading days later, Tesaro received a cash buyout offer at $75 per share from GlaxoSmithKline
In the business of investing, it does not get any better than this trade. The buyout price represents a return of 116%.
This is an example of a special situation, and illustrates why investors should focus on them, as this bull market is aging and represents higher risks than most investors realize.
Popular stocks such as Apple
are also beginning to develop positive technical patterns.
Positive technical patterns are also developing in stocks that benefit from exports, such as Boeing
Several oil stocks, such as Oasis Petroleum
and Exxon Mobil
are also beginning to show positive technical patterns.
Among marijuana stocks, Canopy Growth
and New Age Beverages
have budding positive technical patterns.
Those are good signs, but please note that budding positive technical patterns are not always completed.
What to do now
At The Arora Report we are deploying more cash in the stock market and reducing hedges. This indicates that in the very short term, risks have become lower and there is potential of a short-term rally. However, investors still need to be cautious. The patient has not been cured, only a lifeline has been thrown. The trade truce between Trump and Xi is only for 90 days. Those 90 days may be extended. Expect volatility and rumors to continue.
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.