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Stock bulls might want to be on alert if new allegations against President Trump turn out to be true.

Special Counsel Robert Mueller already is investigating Russian collusion, which is a big overhang over the Trump administration.

And, now, Michael Wolff’s new book (released Jan. 5), “Fire and Fury,” makes several allegations against Trump. It has become a best-seller on Amazon AMZN-1.79% As my longtime readers know, I am politically agnostic. I see my sole job as helping investors.

There is one new set of allegations that could cause a lot of damage to the stock market. Before delving into them — and offering an alternative investment to U.S. stocks — let’s look at a chart to fully understand what such allegations could do to the market.

Chart

Please click here for an annotated chart of the Dow Jones Industrial Average ETF DIA-0.85% which tracks the Dow Jones Industrial Average DJIA-0.88% Similar conclusions can be drawn from the SPY-1.15% ETF, which represents the S&P 500 SPX-1.12% the QQQ-1.28% ETF, which represents the Nasdaq 100 NDX-1.3% and the IWM-0.26% ETF, which represents the Russell 2000 RUT-0.38% Please note the following from the chart:

• In technical analysis when a major resistance is broken to the upside, it becomes support.

• The breakout point shown on the chart is the major support.

• The major support is 7,000 Dow points below where the index is now.

• There are only minor supports between here and the major support shown on the chart.

• In my 30 years-plus in the markets, I have repeatedly seen that if there is a significant adverse fundamental development in the markets, the markets cut through minor support levels like a hot knife through butter.

• Often the long-term bottom is at the major support level.

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.

Money laundering

The new allegations are that the FBI is investigating money laundering against Trump and his associates. If true and the FBI finds something, money laundering could hurt Trump more than the Russian investigation.

Since the details are in the book and excerpts are all over the internet, there is no value to be added by regurgitating those here. Surprisingly, there has not been much written about how investors should respond to the allegations. That is my motivation to write this column.

Analyzing the allegations

I have no special expertise to analyze the allegations. However, I do have decades of expertise in the markets. Several rules of investing that have been borne out of my decades of experience have now come to be affectionately known as Arora’s Laws of Investing. The second Arora’s Law of Investing is: “No one knows with certainty what is going to happen next.”

Prudent investors analyze various scenarios in advance and are prepared in advance; this has also been one of the keys to the success of The Arora Report.

At The Arora Report, our working assumption is that for the time being nothing is going to come out of these allegations and the market is going to ignore them. However, we are keeping a careful watch, and our portfolios are positioned in a way that will be protective if there is bad news.

Emerging Asia surges 47%

One practical step that every investor can take is to diversify outside the United States.

The MSCI Asia ex-Japan Index surged 47% in 2017 compared with 20% for the S&P 500 in the U.S. Significant opportunities lie ahead in emerging markets. All long-term investors should have a decent exposure to emerging markets. Furthermore, emerging markets often provide excellent short-term trading opportunities.

Here are the four key points to consider.

• The U.S. market is very expensive. Emerging markets, for the most part, are relatively inexpensive.

• Emerging economies are growing at a much faster rate than the United States. In the long term, this should lead to significantly higher returns in emerging markets.

• Demographics in a country are one of the best predictors of returns over the long term. Demographics in emerging Asia are significantly better than in the United States.

• Emerging markets tend to be more volatile than the United States. This provides excellent short-term trading opportunities. However, the long-term investor needs more patience, self-discipline and guidance.

In ZYX Emerging, one of The Arora Report’s services, we closely follow 15 emerging markets and often find good investments. At this time, our four favorite markets in emerging Asia are: China, India, Indonesia and Vietnam.

Some of our favorite ETFs are ASHR+1.15% EPI-0.58% EIDO-0.5% and VNM-0.8%

Making 30% in three months

Investors can also focus on special opportunities, such as General Electric GE-2.41% Please see “How to potentially get a 30% return in three months with the ‘January Effect.’ ”

Most vulnerable

The most vulnerable stocks are high-flier tech stocks such as Apple AAPL-3.17% Facebook FB-0.9% Google GOOG-2.38% GOOGL-2.42% Tesla TSLA+4.42% Micron Technology MU-0.47% and AMD AMD-2.12%

Investors ought to pay attention that their portfolios are not overly concentrated in tech stocks.

Stay bullish

For the time being, investors ought to consider staying bullish, but to be prepared to change that stance if new developments happen. Please see “Trump floats Dow 30,000 — here’s how you can get to that milestone safely.”

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report.

Nigam Arora is an investor, engineer and nuclear physicist by background, has founded two Inc. 500 fastest-growing companies, is the developer of the adaptive ZYX Global Multi Asset Allocation Model and the ZYX Change Method to profit from change in trading and investing. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.

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