By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Biden Response
Please click here for a chart of Light Sweet Crude Oil futures (CL_F).
Note the following:
- Three U.S. troops were killed in a drone attack in Jordan by Iran backed militias.
- Initially following the attack over the weekend, a strong positive reaction was expected in gold, oil, bonds, and the dollar. A negative reaction was expected in stocks.
- Biden was under increasing pressure from Republicans to attack Iran.
- The fear was escalation of conflict in the Middle East.
- As the weekend progressed, Republicans accused Biden of being weak.
- Yesterday evening when futures opened, there was only slight buying in oil and slight selling in stocks.
- The chart shows that as of this writing, oil futures have reversed. Oil is most sensitive to developments in the Middle East.
- In The Arora Report analysis, the probability is high that in spite of strong rhetoric by Biden, Biden’s response to the attack and loss of three soldiers is likely to be weak. In The Arora Report analysis, Biden does not want to get into war with Iran.
- A weak response from the U.S. will not be largely disruptive to oil and the broader markets, at least in the short term.
- Prudent investors should keep in mind that it is an election year. Despite The Arora Report’s analysis of a low probability, Biden may take a stronger position with November voters in mind. A strong reaction from the U.S. would put downward pressure on the stock market.
- Investors are optimistic going into tech earnings this week:
- AMD, GOOG, and MSFT report on Tuesday.
- QCOM reports on Wednesday.
- AAPL, AMZN, and META report on Thursday.
- Investors are also awaiting market moving data this week:
- The FOMC meeting begins Tuesday. The rate decision will be announced Wednesday at 2pm ET followed by Powell’s press conference at 2:30pm ET.
- The Bank of England’s rate decision will be announced on Thursday.
- The jobs report, the mother of all numbers, will be released on Friday at 8:30am ET.
- 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.
China
A court in Hong Kong has ordered Evergrande, once the largest real estate developer in China, to be liquidated. In The Arora Report analysis, this will not have a negative impact on the Chinese stock market.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Nvidia (NVDA), Microsoft (MSFT), Meta (META), Amazon (AMZN), and Tesla (TSLA).
In the early trade, money flows are neutral in Alphabet (GOOG).
In the early trade, money flows are negative in Apple (AAPL).
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
Gold is seeing buying on Middle East concerns.
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 *** in oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin miners often tend to lead bitcoin (BTC.USD). Previously, we shared with you that short sellers were aggressively short selling bitcoin miners when bitcoin ETFs were approved. The signals from bitcoin miners proved accurate as bitcoin lost about 20% of its value. Now, short sellers are taking profits by buying to cover. This is driving bitcoin miners higher and adding to buying in bitcoin.
Bitcoin is trading above $42,000.
To consistently profit from bitcoin, listen to the three part podcast series titled “Whales’ Secrets You Need To Know: Capturing Bitcoin Profits” in Arora Ambassador Club.
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 on Middle East concerns.
The dollar is stronger on Middle East concerns.
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 $2036, silver futures are at $23.16, and oil futures are at $77.56.
S&P 500 futures are trading at 4916 as of this writing. S&P 500 futures resistance levels are 5020, 5210, and 5400: support levels are 4852, 4826, and 4770.
DJIA futures are down 25 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 seven 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.
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.
