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Investors, after facing huge losses amid the threat of the coronavirus, are grappling with what is next for the stock market.
In January, I warned that an external event could cause a major drop in the market. Now it has happened. Something investors need to be on the lookout for: potential treatments that could put a halt to this public health crisis, unfolding economic calamity and stock market rout.
We have been assessing potential treatments. It’s clear that a vaccine would take at least a year. The best hope is finding an antiviral that at least lessens the severity of the coronavirus, much like Tamiflu lowers the severity of the seasonal flu.
We are not infectious-disease experts. Based on our consultations and research, our conclusion has been that chloroquine may have the most potential of several drugs being tried. The data in this journal is helpful.
President Trump has touted chloroquine as a potential treatment; he did so again Friday. For that, he has come under criticism by some for giving false hope. Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said Friday, standing next to Trump, that chloroquine could potentially be used, though it’s not a prime candidate at the moment.
I won’t wade into the controversy but instead focus on implications for the stock market. Let’s explore with the help of a chart.
Chart
Please click here for an annotated chart of SPDR Dow Jones Industrial Average ETF DIA, -3.49%, which tracks the Dow Jones Industrial Average DJIA, -3.56%.
Note the following:
• The chart shows the target zone if there is a positive development on an antiviral drug against COVID-19.
• The chart shows a small bounce in the stock market after the support zone was broken. This bounce mainly reflected a short squeeze and so-called quadruple witching. In quadruple witching, stock options, stock index futures, stock index options and single stock futures expire.
• To learn more about the support zones, please click here.
• Click here to learn about an objective way to call the bottom, as shown on the chart.
• It seems that chloroquine has in vitro activity against the novel coronavirus. In plain English, this means that chloroquine is effective in a test tube.
• There is anecdotal evidence that chloroquine helps with coronavirus.
• There are no rigorous clinical trial results at this time that show chloroquine being beneficial against coronavirus.
• Chloroquine is an inexpensive, old drug that is used against malaria and in certain cases of lupus and arthritis.
• German company Bayer BAYRY, -0.89% is donating three million tablets of chloroquine.
• Generic drug manufacturers such as Teva Pharmaceutical TEVA, +2.09% and Mylan MYL, +1.68% appear to be gearing up for mass production of chloroquine.
• There are many other drugs with possibilities, notably Gilead Sciences’ GILD, -6.29% remdesivir, that are being tested.
What does it all mean?
In addition to watching the S&P 500 Index SPX, -3.51%, consider watching leaders in certain industries. Those include, among others, Apple AAPL, -1.41%, Advanced Micro Devices AMD, +0.88%, American Airlines AAL, +0.34% and J.P. Morgan Chase JPM, -2.30%.
Consider covering short positions, reducing hedges and buying at the first sign of a positive drug result. We have published a 16-stock coronavirus portfolio that will benefit most.
Remember, under these circumstances, investors ought to pay attention to Arora’s Second Law of Investing and Trading: Nobody knows with certainty what is going to happen next in the markets.
Answers to your questions
Answers to some of your questions are in my previous writings. You can access them here.
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.
