Stock market investors should pay attention to baffling coronavirus data from Boston

Referenced Symbols

DIA-2.38%  DJIA-2.44%  SPY-1.70%  SPX-1.78%  GILD-3.25%  AMZN+0.78%   MSFT-1.98%   AMD+0.65%   TSLA-0.99%

Investors may not have noticed Boston coronavirus data that goes against the prevailing wisdom.

In Boston’s Pine Street Inn, a homeless shelter, 397 people were tested for coronavirus and 146 tested positive but showed no symptoms. The Centers for Disease Control is reviewing the data.

There are positive and negative implications for stock market investors — I will discuss those later in this column. The takeaway for investors is that a lot is still unknown about the coronavirus.

Until more is known, investors may consider following a simple principle: Neither be a bull nor a bear. Also, remember to do scenario analysis and use probabilities to follow a framework.

Let’s explore with the help of two charts.

Charts

Please click here for an annotated chart of the SPDR Dow Jones Industrial Average ETF US:DIA, which tracks the Dow Jones Industrial Average US:DJIA.

Please click here for an annotated chart of the S&P 500 ETF US:SPY, which does the same for the S&P 500 US:SPX.

Note the following:

• The first chart, which is monthly, gives a long-term perspective. It should be the starting point.

• The second chart, which is daily, gives a short-term view.

• The first chart shows that on Jan. 22, The Arora Report called a potential stock market drop due to coronavirus. The call was repeated several times until the Feb. 19 market top.

• Investors have written me saying they are struck by the simple fact that the stock market touched the top band of the “mother of support zones” shown on the first chart and reversed to the upside.

• The first chart shows that 65% of the rally is short-squeeze-related.

• The first chart shows that the short-squeeze had mostly exhausted itself last week, and in the absence of more good news, the stock market would have pulled back.

• The first chart shows that the good news about Gilead’s US:GILD remdesivir provided a ray of hope and stopped the pending downward pressure. Please read “A treatment for the coronavirus would be priceless — and worth about 5,000 points in the Dow Jones Industrial Average.”

• The second chart shows that RSI (the relative strength index) is overbought. This means the market is vulnerable to the downside.

• The second chart shows the resistance zone.

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.

Boston news

If Boston data turn out not to be an anomaly, there are several implications for investors.

• The mortality rate may be significantly lower than the prevailing wisdom.

• A large number of people may already be infected compared to the prevailing wisdom.

• Herd immunity to coronavirus may be closer than generally believed.

• There may be significantly more carriers of the coronavirus than thought, and it may be more difficult to protect the vulnerable population.

Risks remain

Significant risks remain in the stock market both to the upside and the downside. The very positive sentiment in popular stocks such as Amazon US:AMZN, Microsoft US:MSFT, AMD US:AMD and Tesla US:TSLA is bordering on a contrary “sell” signal. Follow Arora’s Third Law of Trading and Investing: Making investing and trading decisions based on probabilities is the only realistic and profitable approach.

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