By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Investors Excited
Please click here for a chart of SPDR S&P retail ETF (XRT).
Note the following:
- The chart shows that the retail stocks have been rallying on strong consumer buying. Please see yesterday’s Morning Capsule for details of the strong Black Friday sales. Earlier, Adobe had increased its estimate of online Cyber Monday sales to $12.2B from the prior $12B. Now, the estimate has risen to $12.4B.
- Investors are excited and believe that the retail ETF XRT is heading towards the resistance zone shown on the chart.
- Prudent investors should note that there is RSI divergence developing as shown on the chart. In plain English, this means that RSI is now lower even though the price has gone higher. The traditional interpretation is negative for retail stocks. This flies in the face of bullish expectations from investors.
- In The Arora Report analysis, after maxing out their credit cards, consumers are increasingly using ‘buy now pay later.’ As investors are excited about ‘buy now,’ they are not asking the ‘pay later’ question. When the bills come due early next year, will the consumer be able to pay them while continuing to splurge?
- Two important data points are ahead this week.
- PCE, the Fed’s favorite inflation gauge, will be released on Thursday at 8:30am ET.
- Powell is speaking in Atlanta on Friday.
- Consumer confidence will be released today at 10am ET and may be market moving.
- This morning, the stock market rally is pausing after S&P 500 rallied 8.5% this month. This is the fourth biggest monthly rally over the last 10 years.
- 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 Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are negative in Alphabet (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 *** gold 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 *** oil in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is range bound.
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 and bonds are range bound.
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 $2022, silver futures are at $24.79, and oil futures are at $75.57.
S&P 500 futures are trading at 4553 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 14 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.
