By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Sentiment Lifting
Please click here for a chart of Hong Kong ETF (FXI).
Note the following:
- Sentiment is lifting in stock markets all across the globe as Chinese stocks fly.
- The chart shows that Hong Kong stocks have broken above the trendline. This is technically a positive.
- The chart shows that Hong Kong stocks appear to be making a higher low. This is technically a positive.
- Stocks in Hong Kong closed up 4% and up 3.2% in Mainland China. Small caps are leading in a sign of optimism.
- The news making Chinese stocks fly is that Chinese President Xi is to discuss stocks with regulators. Also, an arm of the Chinese government is going to buy more ETFs.
- In The Arora Report analysis, the probability is high that the Chinese government is about to start a forceful campaign to lift stocks. However, with the Chinese Communist Party there is always a risk that they may say one thing and do another.
- ZYX Emerging has continuously covered China for 17 years. Please see ZYX Emerging for short term, medium term, and long term ratings as well as buy zones.
- Both weight loss drugs and AI stocks are getting hotter.
- Earlier today, Nvidia (NVDA) crossed $700. NVDA is in The Arora Report ZYX Buy Model Portfolio. There are very large unrealized profits.
- Weight loss drug company Eli Lilly (LLY) reported earnings better than the consensus. Even after a massive run, the stock is up another 5.49% as of this writing in the premarket. LLY is in The Arora Report ZYX Buy Model Portfolio and also has large unrealized profits.
- China, AI, and weight loss drugs are adding to the already extreme positive sentiment in the stock market. As we have written before, the following points are important.
- At extremes, sentiment is a contrary indicator. In plain English this means that extreme positive sentiment is a sell signal.
- Sentiment is not a precise timing indicator.
- As important as sentiment is, no one should act only on sentiment. Investors should do a 360 degree analysis, such as the one provided by the adaptive ZYX Asset Allocation Model with inputs in ten categories.
- ISM Services PMI came at 53.4% vs. 52% consensus. Here are the key points:
- This is a leading indicator and carries heavy weight in The Arora Report models.
- A number above 50% indicates expansion.
- In The Arora Report analysis, digging below the surface, this data indicates the service economy is becoming stronger.
- The price index rose to 64.0% from 56.7%. In The Arora Report analysis, this is of concern as this indicates purchasing managers are expecting a significant rise in prices for services. This runs counter to the narrative that inflation is coming down. Inflation is coming down in goods and housing but continues to be stubborn in services.
- In The Arora Report analysis, even though indexes are marching higher, there is significant weakness under the surface in a vast majority of the stocks.
- There is significant Fed speak ahead. Loretta Mester, Neel Kashkari and Susan Collins will be speaking today.
- 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 Meta (META), Alphabet (GOOG), and NVDA.
In the early trade, money flows are neutral in Microsoft (MSFT) and Apple (AAPL).
In the early trade, money flows are negative in Tesla (TSLA) and Amazon (AMZN).
In the early trade, money flows are mixed in S&P 500 ETF (SPY) and positive 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) 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 on positive sentiment emanating from tech stocks.
Markets
Our very, very short-term early stock market indicator is *** due to the Fed speak ahead. 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 $2043, silver futures are at $22.39, and oil futures are at $73.19.
S&P 500 futures are trading at 4970 as of this writing. S&P 500 futures resistance levels are 5020, 5210, and 5400: support levels are 4918, 4852, and 4826.
DJIA futures are up 11 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 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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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.
