By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Yield Control
Please click here for a chart of Japanese Yen Trust (FXY).
Note the following:
- We have been sharing with you that what the Bank of Japan (BOJ) does will have a major impact on the U.S. stock and bond markets.
- The chart shows that the downward trendline has now been decisively broken. The downward trendline has been in place because the yen has been artificially suppressed by BOJ.
- The chart shows that an upward trendline is now in place.
- The chart shows a break away move in yen overnight on speculation that BOJ is about to abandon yield control. The speculation was triggered by BOJ Governor Ueda indicating that the policy would “become even more challenging from the year end and heading into the next year.”
- In The Arora Report analysis, now there is a 40% probability of a significant change in BOJ policy.
- The up move shown on the chart is equivalent to the yen rising by about 1.5% against the dollar. This is the biggest one day move since January. For a currency, a 1.5% move is a huge move.
- On the yen move, stocks in Asia fell first, which then caused a downdraft in Europe. Without the yen move, there would have been a rip roaring rally in the U.S. stock market today. The yen move is suppressing the rally attempt.
- Since the momo crowd is in control and the momo crowd does not do any analysis, the momo crowd is oblivious to the yen move and is aggressively buying the slight dip in stocks in the early trade.
- As we have been sharing with you, a significant amount of money is borrowed in yen and invested in U.S. stock and bond markets. This strategy becomes less attractive as the yen moves higher and rates in Japan go higher.
- In an important development, J.P. Morgan (JPM) CEO told Congress that he would shut down crypto if he had the power to do so. It is back to the future in bitcoin. Please read the bitcoin section below.
- 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.
Jobless Claims
Initial claims came at 220K vs. 223K consensus. In The Arora Report analysis, this leading indicator runs counter to the consensus in the stock market of aggressive rate cuts by the Fed next year. This data makes tomorrow’s jobs report even more important.
Europe
We previously shared with you that now six rate cuts are expected in Europe next year. Euro area GDP came at -0.1% vs. 0.0% consensus. This new data supports rate cuts in Europe.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
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 yen move is bringing buying into 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 yen move is bringing buying into oil.
The momo crowd is *** oil in the early trade. Smart money is *** oil in the early trade.
For longer-term, please see oil ratings.
Bitcoin
In cryptos, it is back to the future again. Yesterday, there were several anecdotal reports of retail investors prematuring cashing in CDs to buy bitcoin at $45,000 as well as other cryptos. This is prompted by crypto promoters pushing the narrative that bitcoin would move straight to $50,000 and to $100,000 by the year end. This morning, there is slight disappointment on bitcoin pulling back to $43,252.
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 $2056, silver futures are at $24.32, and oil futures are at $70.39.
S&P 500 futures are trading at 4568 as of this writing. S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.
DJIA futures are down 5 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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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.
