By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Buffett Warns
Please click here for a chart of Warren Buffett’s company Berkshire Hathaway (BRK.B).
Note the following:
- The morning capsule is about the big picture, not an individual stock. The chart of BRK.B is being used to illustrate the point.
- Warren Buffett is the most successful investor of our time. Buffett, along with his partner Charlie Munger, provided their insights at the so-called Woodstock of Capitalism in Omaha, Nebraska over the weekend.
- The chart shows the period in which money flew into Berkshire stock on its presumed safety in the financial sector. BRK.B has a 12.93% weighting in the financial sector ETF XLF. After the banking crisis, investors did not want to buy other financial stocks, but to maintain their portfolio weighting in financial stocks they bought BRK.B.
- In The Arora Report analysis, buying Berkshire stock as a proxy for financial stocks is a mistake. Certainly, Berkshire has large insurance operations and holdings in bank stocks, but it also owns a major railroad, Burlington Northern, as well as electric utility company MidAmerica Energy. Apple (AAPL) is also a very important holding of BRK.B.
- RSI on the chart shows that the stock has lost internal momentum. This is noteworthy at a time when Apple stock has made a major up move and there was a lot of excitement about the meeting in Omaha. Prudent investors should take notice.
- Buffett said that the incredible period for the U.S. economy is coming to an end.
- Buffett also expects earnings at a majority of its operations to drop this year.
- Munger said that investors should get used to making less money.
- For those desiring next-level information, there is a multi part series in the Arora Ambassador Club analyzing Buffett’s 41 holdings.
- Janet Yellen is warning of economic chaos and a constitutional crisis if the debt ceiling is not raised. Biden is meeting with congressional leaders tomorrow to resolve the debt ceiling standoff.
- The yield on one-month Treasuries has spiked to 5.488% as of this writing as investors fret over the debt ceiling issue. The yield on one-month Treasuries is now the highest along the yield curve.
- Investors are waiting for CPI data to be released Wednesday at 8:30am ET and PPI on Thursday at 8:30am ET.
- Anticipating that the inflation data might not favor aggressively buying stocks, momo gurus are already laying the groundwork to run up the stock market even if the data is bad. The new momo narrative taking shape is that inflation no longer matters because the Fed will cut interest rates and Apple stock, due to a major buyback, will drive the entire stock market higher.
- In The Arora Report analysis, a majority of the rally on Friday was the result of a short squeeze and aggressive option buying.
- Investors need to be mindful that in the short term, market mechanics can take over and drive the stock market, irrespective of fundamentals and macro. For those wanting an edge, there are several podcasts available on market mechanics in the Arora Ambassador Club.
- A short squeeze is occurring in regional banks in the early trade this morning. This is adding to the positive sentiment.
- Here is the key question for investors: Will the short squeeze continue or will the fundamentals and macro reassert themselves?
Chinese Frenzy
At a time when investors are concerned about U.S. banks, a trading frenzy has started in Chinese bank stocks. In addition to Chinese investors, foreign money is flying in to buy Chinese bank stocks. The stocks being bought include Bank of China and China Citic Bancorp.
For U.S. based investors who are interested in the Chinese bank rally and do not want to take the risk of buying Chinese bank stocks, a simpler way is to buy ETF ASHR. This comment is in response to your questions. ASHR is covered in ZYX Emerging. Please note that ASHR was in the buy zone but is now above the buy zone.
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
Binance, the world’s largest crypto exchange, had to halt bitcoin withdrawals twice during the last 24 hours. This is causing negative sentiment and causing bitcoin to drop below $28,000.
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 $2032, silver futures are at $25.86, and oil futures are at $73.07.
S&P 500 futures are trading at 4155 as of this writing. S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.
DJIA futures are up 89 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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This post was just published on ZYX Buy Change Alert.
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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.
