By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Jobs Report Bullet Dodged
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 is at the 200 day moving average. Here are the key points:
- The 200 day moving average is very powerful, and all investors should pay attention to it.
- The reason the 200 day moving average is so powerful is because legions of investors believe in it and act on it, and the media publicizes it.
- Other than the deeply held myth, the 200 day moving average does not have any special power. Afterall, why not a 190 day or 210 day moving average?
- As you know, The Arora Report is rigorously analytical. Rigorous analysis shows that the 200 day average by itself has no magical power.
- Legions of investors buy stocks when the stock market pulls back to the 200 day moving average because they erroneously consider the 200 day moving average as a major support. There is no analytically valid basis for this myth.
- Legions of investors also sell stocks when the stock market breaks below the 200 day moving average. Again, there is no analytical basis for this belief.
- RSI on the chart shows that the stock market is oversold. Oversold markets tend to bounce.
- The stock market just dodged a bullet from the jobs report. Wall Street’s positioning was such that both a weaker jobs report or a stronger jobs report would have caused a big sell off. Understanding the important market mechanic of positioning can give investors a big edge. Wall Street professionals keep nuances of market mechanics close to the chest because of their very high value. The best way to learn about market mechanics is by listening to the podcasts in Arora Ambassador Club.
- The jobs report came roughly inline with expectations. Here are the details of the jobs report:
- Nonfarm payrolls came at 151K vs. 159K consensus.
- Nonfarm private payrolls came at 140K vs. 145K consensus.
- Average hourly earnings came at 0.3% vs. 0.3% consensus.
- Average work week came at 34.1 hours vs. 34.2 hours consensus.
- Unemployment rate came at 4.1% vs. 4.0% consensus.
- 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
Germany
An important change that was unthinkable until last week is beginning to happen. President Trump’s comments about Russia are shaking Europe’s confidence, particularly Germany. The U.S.’s second largest overseas military presence is in Germany.
Since the end of the Cold War, Germany has renounced building its own nuclear capabilities and opted to be protected by the U.S. Friedrich Merz, Germany’s Chancellor-In-Waiting, has opened the door for Germany to go nuclear.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Nvidia (NVDA).
In the early trade, money flows are neutral in Alphabet (GOOG) and Meta (META).
In the early trade, money flows are negative in Amazon (AMZN), Microsoft (MSFT), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are negative 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.
Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.
Very Very Short-Term Indicator
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.
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 Energy Secretary is seeking $20B to fill the Strategic Petroleum Reserve (SPR). This is bringing in buying in 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
Details of the U.S. crypto reserve are disappointing, but more hype is ahead. Here are the details:
- The reserve will be capitalized with bitcoin (BTC.USD) the U.S. government seizes in criminal and civil cases.
- No new funding is going into the crypto reserve at this time.
- Bitcoin fell on this news as expectations were that the administration would set aside funds to buy bitcoin.
- Bitcoin whales appear to have sold on the news.
- Mom and pop appear to have aggressively bought the dip.
- More hype could be ahead from the White House crypto summit today.
- On the hope of positive announcements from the summit, bitcoin is seeing buying. As of this writing, bitcoin has regained about half of its losses from the reserve capitalization plan.
Markets
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.
S&P 500 futures are trading at 5747 as of this writing. S&P 500 futures resistance levels are 5926, 6017, and 6131: support levels are 5622, 5500, and 5400,
DJIA futures are down 92 points.
Gold futures are at $2924, silver futures are at $32.92, and oil futures are at $67.24.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The protection band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash, Treasury bills, short term fixed income, 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 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.
