By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
China Drills Encircling Taiwan
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 bounced off the low band of the support/resistance zone.
- RSI on the chart shows that the stock market is getting slightly less overbought.
- The jobs report, the mother of all numbers, was released on Friday at 8:30am ET when the stock market was closed.
- Nonfarm payrolls came at 236K vs. 239K consensus.
- Nonfarm private payrolls came at 189K vs. 213K consensus.
- Unemployment rate came at 3.5% vs. 3.6% consensus.
- Average hourly earnings came at 0.3% vs. 0.3% consensus.
- Average work week came at 34.4 vs. 34.5 consensus.
- Overall the jobs report is strong. In The Arora Report analysis, barring surprises in the new data, the jobs report makes a case for a 25 basis point rate hike at the next Fed meeting.
- Investors need to be aware that permabears are projecting job growth to fall near zero later this year. At the same time, permabulls are projecting job growth to stay around 200K per month.
- Prudent investors should consider neither becoming a permabear or a permabull but rather paying attention to the data as it comes.
- The jobs report has given plenty of ammunition to momo gurus to run up the stock market. As a matter of fact, the momo crowd aggressively bought futures on release of the jobs report on Friday. Futures were trading when the stock market was closed.
- This morning caution is seeping into the stock market as prudent investors contemplate how China has so far conducted two days of military drills around Taiwan. The Chinese military is doing live drills to encircle the island. China also practiced hitting key targets in Taiwan.
- Historically, prudent investors become concerned about China’s military drills and the stock market dips like it is dipping this morning, but the momo crowd buys the dip and runs up the stock market.
- Two important pieces of economic data are ahead. CPI will be released Wednesday at 8:30am ET. PPI will be released Thursday at 8:30am ET. These numbers have the potential to move the markets.
- The momo crowd continues to ignore negative news, but prudent investors should not. For example, Apple (AAPL) stock has been run up even though sales in various segments have not been doing well. The latest news is that Apple’s PC shipments dropped 40%. This drop is steeper than the drop seen by Apple’s competitors.
- As an actionable item, the protection band strikes the right balance between various crosscurrents at this time.
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 🔒 stocks 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
There is some disappointment among bitcoin bulls that whales did not take advantage of low liquidity during the holiday weekend to run bitcoin up to $30,000. However, bitcoin continues to levitate above $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 down, and bonds are ticking up.
The dollar is stronger.
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 $2006, silver futures are at $24.97, and oil futures are at $79.97.
S&P 500 futures are trading at 4108 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 down 110 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 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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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.
