AI, ARM IPO, AND $3.4 TRILLION OPTION EXPIRATION SUCK FEAR OUT OF THE STOCK MARKET – BE CAUTIOUS

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By Nigam Arora & Dr. Natasha Arora

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

No Fear

Please click here for a chart of volatility index (VIX).

Note the following:

  • VIX is the fear gauge of Wall Street.
  • The chart shows that VIX has fallen to the lowest level in two years.
  • The fall in VIX is on the longest streak since 2017 – 118 consecutive days without back to back closes over 20.
  • The VIX has closed under the 200 day moving average for 123 days in a row. This is the first time this is happening since 2009.
  • $3.4 trillion notional value of options are expiring today.  This is the largest September option expiration ever.
  • The momo crowd aggressively started buying ARM shares after the regular session close yesterday and has continued to aggressively buy ARM shares in the IPO.  Why is the momo crowd buying ARM so aggressively?  The reason is that they believe that ARM is an AI play on par with Nvidia (NVDA).  Nothing could be farther from the truth. From yesterday’s Morning Capsule:

In The Arora Report analysis, ARM is not an AI company, but facts do not matter in the stock market when investors are excited.  ARM is being marketed as an AI company, and the momo crowd does not know any better.

  • ARM is attempting to pivot to become an AI company. It has yet to be seen if they can succeed.  
  • Thank you for all of your emails requesting a podcast on ARM.  We are starting work on a podcast on ARM.  The podcast will be available in Arora Ambassador Club.
  • Wall Street is driven by fear and greed.  Historically, it pays to sell when fear is sucked out of the stock market and to buy when greed is sucked out of the stock market.
  • In The Arora Report analysis, the lack of fear is a reason to be cautious at this time.  
  • New data from China is spurring buying in stocks across the globe.  The data indicates that China’s economy might be bottoming.
    • Industrial production came at 4.5% year-over-year vs. 4% consensus.
    • Retail sales came at 4.6% year-over-year vs. 3.0% consensus.
    • Unemployment rate came at 5.2% vs. 5.3% consensus.
  • UAW is surgically striking against all of the big three automakers.  This is unprecedented.
  • 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  Apple (AAPL), Tesla (TSLA), and Meta (META).

In the early trade, money flows are negative in Amazon (AMZN), Nvidia, Alphabet (GOOG), and Microsoft (MSFT).

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 *** stocks in the early trade.

Gold

The momo crowd is *** gold in the early trade.  Smart money is *** gold in the early trade.

For longer-term, please see gold and silver ratings.

Oil

WTI crude futures earlier touched $91 before pulling back.

Oil is technically very overbought.  For traders, Brent crude at $100 is the magnet.

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 ***.  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 up, and bonds are ticking down.

The dollar is range bound.

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 $1938, silver futures are at $23.27, and oil futures are at $90.36.

S&P 500 futures are trading at 4549 as of this writing.  S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are down 40 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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