By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
New Bull Market Narrative
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:
- After a strong jobs report, the probability is very low that the Fed will conform to the momo crowd’s narrative that the Fed will stop raising interest rates and start cutting interest rates. This momo crowd narrative had been largely responsible for the stock market rally. For details, please see Friday’s Morning Capsule.
- In Friday’s Morning Capsule we wrote,
The Jobs Report shows that the momo narrative is shockingly wrong. Will momo gurus admit that they were wrong and change their narrative? There is no chance of them admitting that they were wrong. Expect them to come up with a new narrative to try to run up the market even higher.
- Over the weekend, the new momo narrative has taken shape. The new narrative is that a new bull market has started. No one can argue with the beauty of this new narrative as it is not based on any data or something the Fed may do. This way the momo gurus can be proven wrong only if the stock market drops.
- The chart shows that the market is running up again but is in the profit taking zone.
- The chart shows that RSI is overbought. Overbought markets tend to be vulnerable to a pullback.
- The chart shows that the rallies have been on low volume. This is a negative.
- This morning there is also buying attributable to the Senate passing the Inflation Reduction Act.
- The power of private equity lobbying is on full display. The loophole that allows private equity to pay taxes at 20% rate instead of 37.5% survived. Also, the minimum corporate tax of 15% will not be applicable to many private equity companies.
- There is aggressive buying is solar, wind, and EV stocks due to incentives in the Act.
- The biggest beneficiary seems to be First Solar (FSLR). The other beneficiaries are NOVA, RUN, and SPWR. Be careful with solar ETF TAN because it has many Chinese companies. Tesla (TSLA) is also a beneficiary.
- Pharmaceutical companies are big losers.
- The market is buying the winners from the Act, but are they selling the losers from the Act? Of course not.
- There are three developments that theoretically should take some steam out of the market, but in practice, expect the momo crowd to be oblivious and aggressively buy on the new narrative of a bull market.
- Popular semiconductor company NVDA is unexpectedly lowering its guidance due to lower demand for gaming products.
- SoftBank (SFTBY) is announcing a record $23B loss for the quarter. SoftBank has been single handedly responsible for some of the high valuations in the tech sector.
- Warren Buffett’s Berkshire Hathaway (BKR.B) booked $43.8B loss. For those interested in deeper knowledge, please listen to the podcast series on stagflation that analyzes 41 stocks in Buffett’s portfolio to give you the knowledge that you need.
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
Note that the momo crowd was consistently buying oil at high prices, as high as $130. Now, oil has fallen to $88, and the momo crowd is selling. Also, note that smart money was consistently selling oil at high prices and has generated significant profits in oil whereas the momo crowd has experienced significant losses.
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 is above $24,000 on whale buying.
Markets
Our very, very short-term early stock market indicator is 🔒 but expect the market to open 🔒. 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 $1798, silver futures are at $20.28, and oil futures are $88.21.
S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.
DJIA futures are up 173 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 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.
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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.
