By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Bloodshed
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:
- Over 1300 people have been killed in Israel and Gaza. The bloodshed has broad implications for investors.
- The chart shows that last week after touching the 200 day moving average market ran up to the top band of the prior top support zone. The top support zone is now resistance.
- Before the market ran up, the headline of Morning Capsule read: ‘BLOWOUT JOBS REPORT BUT EXPECT THE MOMO CROWD TO TRY TO RUN UP THE MARKET ON HOURLY EARNINGS’. The momo crowd was focused on hourly earnings coming in at 0.2% vs 0.3% consensus. Momo crowd completely ignored that nonfarm payrolls came in at 336K vs 158K consensus.
- In The Arora Report analysis, the Fed is not going to ignore the big rise in payrolls.
- The chart shows that the market has pulled back to the bottom band of the top support zone on bloodshed in the Middle East.
- The stock market is assuming that the conflict in the Middle East will be contained to Gaza.
- Prudent investors need to think about what happens to the stock market if there is a wider conflict.
- In The Arora Report analysis, there is a high probability that the attack on Israel was masterminded by Iranians. Further it is almost 100% that the attack would have not been possible without support from Iran. Here is the key question, “Will Israel and the United States ignore Iran or will they go after Iran?” The answer depends in part on what happens with Hezbollah in Lebanon. If Iran wants to escalate, Hezbollah will likely open a second front against Israel in northern Israel.
- In The Arora Report analysis, Iran is extremely important, because the Strait of Hormuz is a choke point. The Strait of Hormuz is the only sea route from the Persian Gulf to the ocean. At its narrowest, the Strait is only 21 nautical miles wide.
- 17M barrels per day of oil travels through the Strait of Hormuz.
- In The Arora Report analysis, Iran is capable of blocking the Strait of Hormuz.
- In The Arora Report analysis, if Iran were to block the Strait of Hormuz, oil would jump to over $300 per barrel. As a reference, West Texas Intermediate Crude (CL_F) is trading at $86.12 as of this writing. The oil is rising about 4%.
- In The Arora Report analysis, Hamas attack has ruined Biden’s grand plan for security, Middle East peace and his reelection. Please read the Morning Capsule dated October 5, 2023 titled ‘BIGGEST OIL DROP IN A YEAR ON BIDEN’S SECURITY PLAN.’
- In The Arora Report analysis, Biden needs lower oil prices for his reelection. Biden was planning to lower oil prices by offering security guarantees and civilian nuclear technology to Saudi Arabia in return for lower oil prices and normalization of relations with Israel. Saudia Arabia was demanding better treatment of Palestinians.
- In The Arora Report analysis, the events of the weekend have broader implications of Middle Eastern oil.
- Ukraine cannot continue to fight Russia if the flow of Western weapons stops. Indications are that there is celebration in Moscow.
- Among major powers China stands out as a country that has failed to strongly condemn the attack on Israel. If the US gets bogged down in the Middle East, it gives China an opening to attack Taiwan.
- In The Arora Report analysis, prudent investors should note that a very important financial development this morning. Based on history, money should have rushed into the safety of US Treasuries causing the yields to fall significantly. However, bonds are up significantly less than expected. What could be the reason?
- In The Arora Report analysis, bonds are not up as much as expected because the U.S. will be sending aid to Israel. Where is the money going to come from? Of course, from more borrowing. Bonds are under pressure primarily because of heavy treasury borrowing needs that are ahead.
- Investors are rushing to buy defense stocks this morning.
- In The Arora Report analysis, for the time being investors are putting their trust in the market mechanic of year end chase and buying the dip. Most years the year end chase is to the up side. However as explained in detail in the podcast “MARKET MECHANICS: GAIN AN EDGE FROM YEAR END CHASE” the year end chase can also be to the downside. In 2022, the year end chase was to the downside. It is important for investors to understand the market mechanics of year end chase in depth. The podcast is available in the Arora Ambassador Club.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are mixed in S&P 500 ETF SPY and in 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 seeing slight selling.
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 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 $1861, silver futures are at $21.78, and oil futures are at $85.98.
S&P 500 futures are trading at 4312 as of this writing. S&P 500 futures resistance levels are 4400, 4460. and 4600: support levels are 4200, 4000, and 3950.
DJIA futures are down 168 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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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.
