By Nigam Arora
To gain an edge, this is what you need to know today.
Dangerous Choice For Investors
Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).
Note the following:
- The chart shows the stock market is pulling back slightly after a slew of economic data.
- To the momo crowd’s dismay, the chart shows that since the breakout above zone 1 (support now but previous resistance), the stock market has not rocketed higher. Instead, the stock market has pulled back.
- Prudent investors should carefully watch if the stock market bounces off to make new highs after bouncing from the top band of zone 1 or the stock market breaks below the top band of zone 1.
- RSI on the chart shows the stock market is oversold. Oversold markets are susceptible to a bounce.
- A slew of economic data released this morning shows the AI boom is colliding with inflation. In The Arora Report analysis, the Fed faces a dangerous choice for investors. Based on the hard data, the right thing for the Fed to do would be to raise interest rates. However, if the Fed were to raise interest rates aggressively, the momo driven stock market could crash.
- In The Arora Report analysis, the probability of the Fed doing the right thing is low. The Fed is under tremendous pressure from President Trump to lower interest rates. Also,the U.S. Treasury’s latest buyback plan puts the Treasury on a collision course with the Fed if the Fed were to do the right thing.
- In The Arora Report analysis, the actionable item for prudent investors is to be positioned to profit from the AI upside and simultaneously protect their portfolios. The best way to accomplish this goal is to follow the Arora Protection Band. Having deeper knowledge will be of tremendous help to investors. There are many existing podcasts in Arora Ambassador Club, including the start of a new series titled “BRUTAL MATH: WHY SMART MONEY USES 11 LAYERS OF RISK CONTROL.”
- The U.S. economy is 70% consumer based. For this reason, prudent investors pay attention to personal income and personal spending. Just released personal income and spending data shows why inflation is rising. Here are the details of the new personal income and spending data:
- Personal income came at 0.4% vs. 0.2% consensus.
- Personal spending came at 0.2% vs. 0.2% consensus.
- PCE is the Fed’s favorite inflation gauge. PCE came hotter than expected. Here are the details:
- PCE came at 0.2% vs. 0.1% consensus.
- Core PCE came at 0.2% vs. 0.2% consensus.
- Durable orders data is stronger than expected. Here are the details:
- Durable orders came in at 1.1% vs 0.5% consensus.
- Durable orders ex-transportation came at 0.4% vs 0.5% consensus.
- GDP data is inline with expectations. Here are the details:
- Q2 GDP Second Estimate came at 1.5% vs. 1.5 consensus.
- Q2 GDP Deflator Second Estimate came at 6.4% vs. 6.3% consensus.
- Nvidia (NVDA) earnings will be announced after the regular session close and may have a major impact on the stock market.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Meta (META).
In the early trade, money flows are neutral in Apple (AAPL) and Amazon (AMZN).
In the early trade, money flows are negative in Alphabet (GOOG), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are negative in S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQ).
Momo Crowd And Smart Money In Stocks
The momo crowd is *** (To see the locked content, please take a 30 day free trial) stocks in the early trade. Smart money is *** in the early trade.
Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary very, very short-term early stock market indicator is ***. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.
Gold
As we previously shared with you, the gold rally had started due to purchases by Chinese investors to protect themselves from the government’s crackdown on moving money abroad. Over the last few days, Chinese buying has slowed. As a result, we shared with you yesterday that smart money was selling gold. In a divergence, the momo crowd was aggressively buying call options on gold. Gold is seeing a pullback after release of the economic data. In the early trade, smart money continues to sell gold, and the momo crowd continues to aggressively buy gold.
For longer-term, please see gold and silver ratings.
Oil
Oil has seen selling on Iran and Oman reaching an agreement to manage traffic through the Strait of Hormuz.
API crude inventories came at a build of 4.2M barrels vs. a consensus of a build of 1.8M barrels.
The momo crowd is *** oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is seeing selling after the release of new economic data. A short squeeze in bitcoin is also showing signs of ending.
Markets
Interest rates are ticking up, and bonds are ticking down.
The dollar is stronger.
Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.
S&P 500 futures are trading at 7682 as of this writing. S&P 500 futures resistance levels are 7700, 7900, and 8000 : support levels are 7318, 7194, and 7032.
DJIA futures are up 16 points.
Gold futures are at $4636, silver futures are at $68.53, and oil futures are at $80.51.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora Protection Band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash, Treasury bills, short term fixed income, or allocated to short-term tactical trades; and short to medium-term hedges of ***, and short term hedges of ***. This is a good way to protect yourself and participate in the upside at the same time.
You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.
A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.
Traditional 60/40 Portfolio
Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.
Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.
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Nigam Arora
Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.
