By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Speculative Fever Builds
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 AI frenzy driven rally in the magnificent seven stocks this year is causing a speculative fever to build. The magnificent seven stocks are Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
- The chart shows that the stock market is consolidating after the formation of an island that was not well developed. The consolidation is above the top support / resistance zone shown on the chart.
- There are predictions of an over 100 point move in S&P 500 tomorrow after the release of the all important CPI data.
- Momo gurus are laying the groundwork to persuade their followers to buy stocks irrespective of what the real data says tomorrow.
- The resistance zone shown near the top of the chart is the magnet for traders before the year end.
- While the speculative fever is building, the Fed speak is decidedly hawkish.
- Nasdaq is being forced to conduct a special rebalance of Nasdaq 100 before the market open on Monday, July 24.
- There are only two special rebalances in history – May 2011 and Dec 1998.
- The reason for the special rebalance is that the magnificent seven stocks are now more than half of the weight of the index.
- The weight changes are not known at this time. They will be announced on Friday, July 14.
- The weight of six out of the seven magnificent stocks is likely to be reduced. META may not have its weight reduced.
- This may have a slight negative impact on the magnificent seven stocks.
- There is optimism in Asia on China’s stimulus. The optimism from Asia is spilling into the U.S. market in the early trade.
China
In yesterday’s Morning Capsule, we wrote:
In The Arora Report analysis to counter deflation, the Chinese government is likely to provide stimulus. Investors love stimulus as stimulus creates more money. A part of the stimulus money rushes into the stock markets.
The call has proven spot on. China is announcing stimulative measures to support the property sector.
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
A well known analyst from a large reputable bank is predicting that bitcoin will reach $50K by the end of 2023 and will be above $100K by the end of 2024.
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 $1936, silver futures are at $23.25, and oil futures are at $73.28.
S&P 500 futures are trading at 4455 as of this writing. S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.
DJIA futures are up 116 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.
