By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Market Mechanics Driving Stocks
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 that the stock market is slightly above the top band of support zone 1.
- The breakout line shown on the chart is now a magnet for Wall Street machines.
- The chart shows that the stock market is slightly above the 200 day moving average shown in yellow.
- A legion of investors buy when the market moves above the 200 day moving average and sell when the market moves below the 200 day moving average.
- As we have shared with you before, the 200 day moving average by itself has no power. The 200 day moving average derives its power from the widespread belief among less knowledgeable investors who rely solely on traditional technical analysis and do not do 360 degree analysis.
- Prudent investors should also be aware of an army of retail traders who are constantly buying and selling intraday at this time based on the 200 day moving average.
- RSI on the chart shows that the market has more room to move to the upside.
- The following market mechanics are in control and are the prime drivers of the stock market at this time:
- Window dressing
- Portfolio rebalancing
- Reduced hedge fund positioning
- A viscous short squeeze
- Even smart money is getting whipsawed with evolving announcements related to tariffs.
- Smart money sold when the administration shifted its stance on sectoral tariffs. The stance over the weekend was that there would not be sectoral tariffs or they would be delayed. Yesterday, the stance changed to sectoral tariffs are coming soon.
- Shortly after selling, smart money bought when President Trump said that he would give breaks to many countries on tariffs. The prior stance was that there would not be many breaks.
- Consumer confidence will be released at 10 am ET and may be market moving. Prudent investors should note the following:
- Consumer sentiment is very important because the US economy is 70% consumer based.
- Lately, consumer surveys have been showing consumer weakness.
- The hard data shows that the consumer has been borrowing and spending. Now, many consumers are reaching their borrowing limits.
- In the press conference last week, Powell outright dismissed consumer surveys. There is some merit to Powell’s thinking. As we have been sharing with you, consumers often say one thing and do another. However, investors should also note that the data from consumer surveys goes against the narrative Powell was trying to propagate.
- Prudent investors should pay attention to a new warning that a bubble is building in the United States in AI data center construction. The warning is coming from none other than Joe Tsai, the chairman of Alibaba.
- 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.
China
After a rip-roaring rally, Chinese stocks, notably AI stocks, are beginning to see money outflows.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are negative in Nvidia (NVDA) on the warning from Joe Tsai.
In the early trade, money flows are positive 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) 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.
Very Very Short-Term Indicator
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.
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 buying.
Markets
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.
S&P 500 futures are trading at 5831 as of this writing. S&P 500 futures resistance levels are 5926, 6017, and 6131: support levels are 5748, 5622, and 5500.
DJIA futures are up 91 points.
Gold futures are at $3023, silver futures are at $34.02, and oil futures are at $69.56.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The protection band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash, Treasury bills, short term fixed income, 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.
