STOCK MARKET WAITING FOR POWELL TESTIMONY AND JOBS REPORT, ARTIFICIAL INTELLIGENCE HYPE, OPEC SPLIT

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By Nigam Arora & Dr. Natasha Arora

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

Artificial Intelligence

Please click here for a chart of semiconductor ETF SMH.

Note the following:

  • Artificial intelligence (AI) hype is in full bloom as more and more people use ChatGPT.
  • A good way to play the AI boom is by buying certain semiconductor stocks such as Nvidia (NVDA) and AMD (AMD).  There is a list of 18 stocks that will benefit from AI that merit close watching.  You can access the list from the top menu in ZYX Buy and ZYX Short.
  • Those that focus on ETFs are buying semiconductor ETF SMH.  SMH is in the Model Portfolio of ZYX Allocation.
  • Even without the AI hype, semiconductors are a leading sector.  A move in semiconductors is often an early indicator for the rest of the stock market.  
  • The chart shows that semiconductors have moved above the top support zone after dipping into the support zone last week. This is a bullish signal.
  • The chart shows that the inverse head and shoulders pattern is still in play in semiconductors.  This is a bullish pattern.
  • The chart shows that RSI is on a buy signal for semiconductors.
  • Bullishness on semiconductors aside, two key events for investors are ahead.
    • Powell will testify in the Senate on Tuesday and in the House on Wednesday.
    • The mother of all reports, the jobs report, will be released on Friday.
  • Expectations are for Powell to be hawkish.  If Powell is anything but hawkish, expect the momo crowd to aggressively buy stocks.
  • Expect progressives in Congress to push Powell to stop increasing rates and even cut rates.  Depending upon how Powell answers, there is a potential trigger for more buying in stocks.
  • Expect continued buying by 200-day moving average believers from the signal last week.  For details please read the Capsules from last week.
  • The momo crowd historically buys ahead of the jobs report on hope strategy.
  • Expect the 0DTE crowd to become aggressive in call buying if the stock market starts moving up. It is important for both long term investors and short term traders to understand how 0DTEs are impacting the stock market and messing up many traditional signals.  
  • For those wanting next level information, the podcast titled “Market Mechanics: Understand Zero-Day Options To Gain An Edge” is in post production and will be released shortly.
  • Amid all of this bullishness, do not lose sight of the following important facts:
    • Interest rates are likely to be higher for longer.
    • Bullish investors are now focused on 2024 earnings.  In The Arora Report analysis, the bullishness about 2024 earnings is premature. 
    • Valuations are too high relative to interest rates and future earnings.
  • As an actionable item, the protection band provides you with guideposts, taking into account the probabilities of various bullish and bearish scenarios at this time.
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China

China has announced that its target for GDP growth is 5%.  This is less than expected.  Foreign money has been rushing into China on China reopening trade.  Let us see if some foreign money starts leaving China after this GDP target.

The lower than expected GDP target also means less need for government stimulus. Investors are addicted to government stimulus and were expecting significant government stimulus going forward.  

If investing in Chinese stocks and ETFs, prudent investors should keep in mind the risk of China invading Taiwan even though the stock market is totally ignoring the risk. In some circles, the belief is that the window for China to attack Taiwan has passed due to aggressive U.S. support for Taiwan and the success of Ukraine against Russia.  In The Arora Report analysis, there is still a significant risk of China attacking Taiwan in the future. This means that the short term trades in Chinese stocks and ETFs may be fine, but new long term investments should be avoided.

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

There are reports of serious internal discussions in U.A.E. about potentially leaving OPEC.  A split between U.A.E. and Saudi Arabia will be negative for oil prices.  Of course, a drop in oil prices will be good for the U.S. stock market.

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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 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 down and bonds are ticking up.

The dollar is weaker.

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 $1858, silver futures are at $21.24, and oil futures are at $78.55.

S&P 500 futures are trading at 4057  as of this writing.  S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.

DJIA futures are up 7 points.

Protection Bands 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.

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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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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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