By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Perma Bull Perma Bear Sentiment Indicator
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows that the AI frenzy driven rally continues.
- The chart shows that on the pullback, the trendline held. Technically, this is bullish behavior.
- The chart shows that the stock market is back up against the low band of the resistance zone. The pattern formed is a bullish pattern. The prior outside day pattern is now negated.
- The chart shows that RSI has pulled back, relieving the overbought condition. Technically, this is bullish as this often allows the stock market to go higher.
- Wall Street is full of gurus who are perma bulls. They are always bullish no matter what. Outside of mainstream Wall Street, there are a few prominent perma bears who are always bearish. The crowd is now revering perma bulls and reviling perma bears. Last year, the crowd was revering perma bears and reviling perma bulls.
- Interestingly, a vast majority of perma bull gurus did not recognize early on that there would be an AI rally. Many stayed oblivious to AI until everybody and their cousin knew about it. The result of the AI frenzy driven rally is that perma bulls are benefiting.
- Prudent investors make a point to never follow the perma bulls or the perma bears.
- Smart money uses the crowd’s reaction to perma bulls and perma bears as a sentiment indicator. In general, you want to buy when perma bears are revered and you want to be cautious when perma bulls are revered.
- The crowd’s reaction to perma bears and perma bulls is one of the data points in the proprietary Arora Sentiment Indicator.
- The deluge of earnings continues this week. Most important are earnings from Apple (AAPL) and Amazon (AMZN). Both Apple and Amazon earnings are set to be released on August 3 after market close.
- Among the magnificent seven, the money is flowing in AAPL, Nvidia (NVDA), Alphabet (GOOG, GOOGL), AMZN, and Tesla (TSLA). It is a rare Monday when money is not flowing in Microsoft (MSFT) and Meta (META).
- The all important jobs report is ahead on Friday.
- As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.
Bank Of Japan Curveball
The Bank of Japan (BoJ) unexpectedly threw a curveball after Friday’s decision to widen the band for yield control. Previously, the high band was 0.5%. BoJ unexpectedly bought JGBs at a yield of 0.6%.
There is important economic data from Europe. Here are the details:
- Eurozone Q2 GDP came at 0.3% quarter-over-quarter vs. 0.2% consensus.
- CPI came at -0.1% month-over-month vs. 0.3% consensus.
- Core CPI came at -0.1% month-over-month vs. -0.5% consensus.
China’s manufacturing PMI came at 49.3 vs. 49.2 consensus.
Non-manufacturing PMI came at 51.5 vs. 52.9 consensus.
The Chinese government is looking to provide stimulus to increase consumption. As a result, stocks in Hong Kong and Shanghai rose in spite of the weak data.
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.
Gold futures have crossed above the psychologically important level of $2,000.
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see gold and silver ratings.
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
It has been revealed that the SEC had instructed Coinbase (COIN) to halt trading on all crypto coins except bitcoin (BTC). If Coinbase had followed the SEC order, this would have been the death knell for most cryptos. This is what led to legal action.
Bitcoin is range bound.
Our 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.
Interest rates and bonds are range bound.
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.
Gold futures are at $2,005, silver futures are at $24.65, and oil futures are at $81.30.
S&P 500 futures are trading at 4615 as of this writing. S&P 500 futures resistance levels are 4713, 4770, and 4826: support levels are 4600, 4460, and 4400.
DJIA futures are up 46 points.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding 🔒 in cash or Treasury bills 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.
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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