By Nigam Arora & Dr. Natasha Arora
Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report.
Please scroll down for the section ‘Protection Bands and What To Do Now.’
CONFUSING JOBS REPORT GIVES AMMUNITION TO BOTH BULLS AND BEARS
To gain an edge, this is what you need to know today.
Confusing Jobs Report
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows that QQQ closed slightly above the top band of the support zone.
- The chart shows that QQQ did not touch the low band of the support zone during the drop.
- The chart shows that in the early trade QQQ is near the top band of the support zone.
- RSI on the chart shows that the market is very oversold.
- The sum total of the foregoing is a positive picture from a technical perspective. However, keep in mind that we are in a period where the macro news can easily trump the technical picture.
- The jobs report is adding to the confusion with contradictory data that provides ammunition for both bulls and bears.
- Here are the details of the jobs report.
- Nonfarm payrolls came at 199K vs. 440K consensus.
- Nonfarm private payrolls came at 211K vs. 420K consensus.
- Average hourly earnings rose 0.6% vs. 0.4% consensus.
- Unemployment rate fell to 3.9% vs. 4.1% consensus.
- Household survey was strong.
- 650K more people are now employed.
- There is a discrepancy between the two surveys.
- Bulls are going to use the foregoing data to claim that the Fed will not be as hawkish as it seems.
- Bears are going to point to the above data and claim that a stagflation scenario is developing.
Eurozone Inflation
- Eurozone CPI came at +5% vs. 4.9% consensus.
- This is a new record.
- This data questions European Central Bank’s easy monetary policy.
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 🔒.
Gold
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒.
For longer-term, please see oil ratings.
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 up, and bonds are ticking down.
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 $1791, silver futures are at $22.18, and oil futures are $79.84.
S&P 500 futures resistance levels are 4713, 4770 and 4826 : support levels are 4600, 4460 and 4400.
DJIA futures are down 44 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 existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or short-term bond funds 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.
FED SPOOKS THE MARKET BUT TECHNICAL SUPPORT NEARBY
To gain an edge, this is what you need to know today.
Fed Spooks
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- Please start by reading yesterday’s Afternoon Capsule. The market is spooked on the prospects of the Fed reducing its balance sheet. We were expecting this to happen in a March – April timeframe. It is still likely to happen after March.
- The main issue here is that Wall Street consensus was for this to either not happen for a very long time or at the earliest in 2023.
- Tech stocks are the hardest hit.
- The chart shows that QQQ is at the top band of the support zone. As long as the support zone holds, no significant damage is done.
- RSI on the chart shows that it is oversold. Oversold markets tend to bounce.
- There are likely many stops below the bottom band of the support zone. It is not uncommon for hunt and destroy algorithms to take out these stops before a bounce.
- The assumption at this point in time is that the momo crowd is not going to change its behavior and will buy the dip.
- Another assumption at this point is that momo gurus will come up with narratives to persuade their followers to keep on buying stocks.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒.
Gold
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒.
For longer-term, please see oil ratings.
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 up, and bonds are ticking down.
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 $1787, silver futures are at $22.02, and oil futures are $80.02.
S&P 500 futures resistance levels are 4713, 4770, and 4826: support levels are 4600, 4460 and 4400.
DJIA futures are up 90 points.
UNUSUAL DISPERSION IN THE STOCK MARKET, POLITICIANS TALKING FREE MONEY AGAIN
To gain an edge, this is what you need to know today.
Unusual Dispersion
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 compares S&P 500 ETF SPY with Nasdaq 100 ETF QQQ, long-duration momo ETF ARKK, bank ETF KBE, and oil exploration ETF XOP.
- The chart shows a significant dispersion. XOP went up 2.87% while ARKK fell 3.79%.
- This large dispersion is not common especially at the start of a new year.
- The dispersion is being caused by a significant rise in interest rates.
- It is worth repeating what we wrote in yesterday’s Afternoon Capsule,
It is perfectly fine to own select long-duration momo stocks in a highly diversified portfolio. However, it is important for investors to review their portfolios to make sure they are not overly concentrated in long-duration momo stocks. This especially applies to newer subscribers as many such subscribers own mostly momo stocks when they join The Arora Report. Their motivation to join The Arora Report is that they have lost significant amounts of money before joining The Arora Report while their friends have done well with The Arora Report.
If you have been carefully following our posts and the Model Portfolios, you are likely in good shape.
We have been receiving emails from many subscribers asking for a podcast on long-duration momo stocks and the impact of rising rates. We are starting work on such a podcast that will be available to Arora Ambassador Club members.
More Free Money Again
No reason to worry about the dispersion — politicians are talking about coming to the rescue again. There is a credible report that Democrats and Republicans are coming together to offer free money to businesses again. If politicians carry through, a large part of the free money will flow into the stock market driving the stock market higher.
Where will the politicians get the money? You already know the answer — they will borrow more without even a discussion of how they will pay the borrowed money back. The rising debt has serious long-term implications for investors. If you have not already done so, serious investors should listen to the podcast The Dirty Secret of the President and the Fed Chair You Need to Know.
ADP is the largest private payroll processor in the country. It uses its data to give a glimpse of the employment picture ahead of the official jobs report that will be released on Friday.
ADP Employment Change came at 807K vs. 425K consensus. This is a very strong number and should dissuade politicians from borrowing and sending more free money. However, the politicians will first have to pay attention to the data and this is not likely. Politicians have their eyes set on the mid-term election.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒.
Gold
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒.
For longer-term, please see gold and silver ratings.
Oil
API came at a crude draw of 6.43M barrels vs. consensus of 3.40M barrels draw.
The momo crowd is 🔒 oil in the early trade Smart money is 🔒.
For longer-term, please see oil ratings.
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 and bonds are range-bound.
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 $1827, silver futures are at $23.18, and oil futures are at $77.80.
S&P 500 futures resistance levels are 4826 and 4900: support levels are 4770, 4713, and 4600.
DJIA futures are up9 points.
THE WORST NEW YEAR’S START FOR BONDS SINCE 2009
To gain an edge, this is what you need to know today.
The Worst Start
Please click here for a chart of 7 – 10 year Treasury bond ETF (IEF).
Note the following:
- The momo crowd is aggressively buying stocks driven by the momentum and hopes for 2022.
- Historically when S&P 500 (SPX) is over 25% in a year, as was the case in 2021, it is positive the next year 85.7% of the time. The median gain is 13%.
- The momo crowd is totally ignoring what is happening in the bond market.
- Bonds have experienced the worst drop to start a year since 2009.
- The chart shows that the bond ETF gapped down and closed lower.
- The chart shows that the ETF is now in the support zone.
- RSI on the chart shows that bonds are now oversold.
- The significant drop occurred on no news. The implication is that bonds were artificially manipulated in December and the manipulation prevented them from falling.
- As of this writing, the 10-year yield has reached 1.661%.
- The 10-year Treasury yield is important as this is the benchmark for determining the appropriate PE for the stock market. In theory, the higher the bond yield, the lower the PE for the stock market.
Yen Drops
Japanese currency yen is considered a safe haven just like gold. Yen has dropped to the lowest level since 2017. This indicates that investors are in a full risk-on mode totally ignoring any downside risk.
Economic Data
ISM Manufacturing Index will be released at 10:0 am ET. The consensus is 60.0%. This number can move the market.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒.
Gold
The momo crowd is 🔒 in the early trade. Smart money is 🔒.
For longer-term, please see gold and silver ratings.
Oil
OPEC is likely to increase production by 400K barrels.
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 oil in the early trade.
For longer-term, please see oil ratings.
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 up and bonds are ticking down.
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 $1807, silver futures are at $22.93, and oil futures are at $76.46.
S&P 500 futures resistance levels are 4826 and 4900: support levels are 4770, 4713, and 4600.
DJIA futures are up 153 points.
INVESTORS SHOULD KEEP THIS CHART FRONT AND CENTER IN 2022
To gain an edge, this is what you need to know today.
Front And Center
Please click here for a chart of the Federal Reserve balance sheet.
Note the following:
- The chart compares the Fed balance sheet (shown in blue) with S&P 500 (SPX shown in green).
- In 2022, investors should keep this chart front and center.
- The chart shows that the stock market has risen with a lag after the rise in the Fed balance sheet. In plain English, the Fed balance sheet is a fancy way of describing money printing.
- The chart shows a massive rise in the Fed balance sheet from under $1 trillion to $8.76 trillion.
- The chart shows a big drop in the stock market the last time when the Fed started slightly reducing its balance sheet.
- The chart shows a step rise in the Fed balance sheet when the stock market had a big virus-related drop.
- The sum total of the foregoing is that the rise in the Fed balance sheet is one of three big factors responsible for the rise in the stock market.
- 2022 will be different than 2021 in that the Fed has started tapering. In plain English, this means that the Fed is printing less money.
- By March, the Fed will no longer be printing money.
- The bullish case for the stock market is that even though the Fed will stop printing money, the Fed has no plans to reduce its balance sheet in 2022 and therefore the stock market will continue to go up.
- The bearish case is that even though the Fed will not reduce its balance sheet, interest rates will rise and valuations are very high.
- As the bull and bear battle begins in 2022, expect more volatility.
Blind Money
Wall Street is frontrunning the blind money that is going to pour into the stock market today and tomorrow. Blind money is the money that comes in at the beginning of the year without any analysis.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒.
Gold
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 oil in the early trade.
For longer-term, please see oil ratings.
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 up and bonds are ticking down.
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 $1806, silver futures are at $22.78, and oil futures are at $74.60.
S&P 500 futures resistance levels are 4826 and 4900: support levels are 4770, 4713, and 4600.
DJIA futures are up 143 points.
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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.
