STOCK MARKET PAUSES AFTER BOND SHORT SQUEEZE TRIGGERED EPIC RALLY, APPLE RECOVERS

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By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

The Next Trigger

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 that the stock market has now moved above the top support zone.
  • The chart shows that the move down below the top support zone in late October has temporarily proven to be a bear trap.
  • RSI on the chart shows that the stock market is overbought.  Overbought markets tend to be vulnerable to the downside.
  • As we have shared with you before, three macro events triggered a vicious short squeeze in bonds, which in turn, led to an epic rally in stocks.
  • In The Arora Report analysis, the first leg of the short squeeze in bonds is now over. 
  • There is Fed speak from Neel Kashkari and Austin Goolsbee.  Powell will be speaking later in the week.
  • It is clear from the Fed speak that there is not clarity at the Fed regarding the following:
    • The real reason behind the rapid rise in long term rates in October
    • Implications now for future Fed policy of long term rates pulling back since Wednesday last week
  • In The Arora Report analysis, the stock market is looking for a trigger for the next move. 
  • On the positive side, Apple stock (AAPL) has recovered after a weak earnings report.  In The Arora Report analysis, it is important to pay attention to the price action in AAPL because it is an indication of investor sentiment.
  • On the earnings front, there is positive news in three areas important to the economy.
    • Data analytics company Datadog (DDOG) reported good earnings.  This is bringing buying this morning in many stocks that have a positive readthrough from Datadog such as Snowflake (SNOW) and MongoDB (MDB).  SNOW and MDB are in the ZYX Buy portfolio that surrounds that core Model Portfolio.
    • One of the largest home builders D.R. Horton (DHI) is guiding Q1 revenues above expectations.  Home builders continue to benefit from a lack of supply of existing homes because homeowners who have locked in a 3% mortgage do not want to sell.
    • Earnings from semiconductor company NXP Semiconductors (NXPI) are in line with expectations.  NXPI is a major supplier of semiconductors to the automotive industry.  After bad earnings from ON Semiconductor (ON) and Wolfspeed (WOLF), the fear was that NXPI would report bad earnings.
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.   Please scroll down to see the protection band.
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Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), and Meta (META).

In the early trade, money flows are negative in Apple (AAPL), Nvidia (NVDA), and Tesla (TSLA).

In the early trade, money flows are mixed 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.

Gold

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.

Oil

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 range bound.

Markets

Our very, very short-term early stock market indicator is ***.  Whichever direction the market starts moving, Wall Street machines will jump in that direction, exaggerating the move.  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 are ticking down, and bonds are ticking up.

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.

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Gold futures are at $1970, silver futures are at $22.67, and oil futures are at $79.18.

S&P 500 futures are trading at 4380 as of this writing.  S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

DJIA futures are down 75 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.

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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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This post was just published on ZYX Buy Change Alert.

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Nigam Arora

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.

Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.

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