By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Make Or Break Data Ahead
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows QQQ is in the resistance zone.
- The chart shows that the rally is on low volume, indicating a lack of conviction.
- The chart shows that RSI has jumped and is now overbought. RSI indicates that the stock market is now vulnerable to the downside if the macro data goes against the market.
- The chart shows Arora calls to raise hedges near the top and the Arora call to reduce hedges near the bottom. These calls have proven spot on. When hedges are used over a long period of time, they can add significant amounts to your returns and significantly lower your risks. If you do not hedge, you can simply adjust cash. Please see the “Protection Band And What To Do Now” section below.
- Consumer Price Index (CPI) and Producer Price Index (PPI) are ahead –these pieces of data are make or break for the stock market. Here is the consensus:
- 0.3% for headline PPI
- 0.2% for core PPI
- 0.4% for headline CPI
- 0.3% for core CPI
- Wall Street is positioned for inflation data to cool and the stock market to break out of the resistance zone shown on the chart.
- Prudent investors need to be aware that if the data goes against Wall Street’s positioning, the stock market reaction to the downside can be severe due to positive positioning. Positioning is an important Wall Street that all investors should strive to deeply understand. The easiest way to understand positioning is to listen to the podcast titled “Market Mechanics: Positioning.”
- Apple (AAPL) is reportedly in talks with OpenAI to put ChatGPT on iPhones. This is creating positive sentiment in the market. On the surface, this is negative for Alphabet (GOOG, GOOGL).
- As a proof positive of the speculative sentiment in the stock market rapidly increasing ahead of the key data, the meme crowd is back. They are running up video game retailer GameStop (GME). To some degree, this is reminiscent of the start of the last meme crowd craze which ended in tears for the meme crowd.
- Artificial intelligence stocks are getting a boost on reports that Arm (ARM) is developing new artificial intelligence chips
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in AAPL, Amazon (AMZN), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are negative in GOOG and Meta (META).
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.
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 along with the rise in speculative sentiment.
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 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 $2355, silver futures are at $28.55, and oil futures are at $78.72.
S&P 500 futures are trading at 5262 as of this writing. S&P 500 futures resistance levels are 5400 and 5500 : support levels are 5256, 5210, and 5020.
DJIA futures are up 118 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 seven 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.
