By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Important Data Ahead
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 chart shows the dip in the market caused by Powell’s remarks. Powell pushed back against aggressive rate cut bets that the momo crowd has placed. Powell clearly said that the Fed plans on two 25 bps cuts this year assuming the economy stays on the expected trajectory. The momo crowd is counting on 100 bps cut. Even non-momo investors are betting on 75 bps cuts.
- The chart shows the dip on Powell’s remarks was aggressively bought, running the stock market higher than where it was before Powell’s remarks. The buying appears to be related to quarter end window dressing.
- Momo gurus’ new narrative to persuade their followers to buy stocks is to not trust the Fed. Prudent investors always need to be mindful that momo gurus’ interest is not the same as prudent investors’ best interest.
- There are two important pieces of data ahead.
- JOLTS job openings data will be released at 10am ET.
- ISM Manufacturing index will also be released at 10am ET.
- Both of these pieces of data may be market moving.
- The most important economic data this week is the jobs report, also known as the mother of all reports, that will be released at 8:30am ET on Friday.
- Expect blind money to flow into the stock market today and tomorrow. Blind money is the money that flows into the stock market on the first two days of the month without any analysis irrespective of market conditions.
- East coast port workers have gone on strike. FedEx (FDX) is a beneficiary. FDX was recently added to the portfolio that surrounds the Core Model Portfolio in ZYX Buy, taking advantage of the dip on earnings. The Arora Report utilizes over 50 different strategies. FDX belongs to the strategy of earnings patterns that historically work. The FDX trade is now profitable.
- In important news for prudent investors, Michael Dell has sold $1.22B in Dell (DELL) shares. Michael Dell is taking advantage of the run up in Dell shares on the AI frenzy. The momo crowd is oblivious and has been an aggressive buyer of DELL stock.
- Prudent investors should also note that there is a consistent pattern of insiders selling AI stocks that have run up. It is important to pay attention to the protection band as well as to separate posts indicating putting on hedges or taking partial profits.
- 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
Japan
Japan’s new prime minister is likely to favor tighter fiscal policy and tighter monetary policy. Such tighter policies will be good for the Japanese yen. There is a position in yen using ETF FXY in ZYX Allocation. On the negative side, tighter fiscal and monetary policies in Japan increase the risk to the carry trade. Lately, in the carry trade, funds have been borrowing in yen and investing in U.S. stocks, especially AI stocks.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Alphabet (GOOG), Meta (META), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are negative in Apple (AAPL), Amazon (AMZN), 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 *** in the early trade.
Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.
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 *** in 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 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 $2675, silver futures are at $31.65, and oil futures are at $67.27.
S&P 500 futures are trading at 5809 as of this writing. S&P 500 futures resistance levels are 5926 and 6017: support levels are 5748, 5622, and 5500.
DJIA futures are down 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.
A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.
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.
