By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Alarming New Data
Please click here for a chart of oil ETF (USO).
Note the following:
- Prudent stock market investors need to pay attention to the alarming data from China.
- It is perfectly fine to join the momo crowd for short term trades as long as you take the additional step of tight risk controls, but it can be disastrous for the long term investor to join the momo crowd in ignoring the data from overseas.
- The world is interconnected. The US stock market is not insulated from developments in China.
- There is new alarming data from China.
- July Retail Sales in China fell to 2.7% vs. 5.0% consensus year over year. This is a significant drop in consumption in China.
- Industrial Production came at 3.8% vs. 4.6% consensus year over year.
- Fixed Asset Investment came at 5.7% vs. 6.2% consensus year over year.
- House Price Index dropped 0.9% in July vs. 0.0% consensus.
- New construction starts from January to July fell 46.1%.
- Property investment from January to July fell 6.4%.
- Jobless rate for 16 – 24 years old rose to 19.9%. This is a record.
- China’s Central Bank is responding by cutting two key lending rates by 10 basis points.
- The Chinese currency yuan is weakening.
- In reaction to data from China, oil is falling over 5% and copper is falling over 3%. There is selling in most other commodities on China data.
- The chart shows that oil peaked two days before the stock market bottom.
- The chart of oil shows a downward sloping trend line.
- The chart of oil shows a significant drop today on China data.
- Oil supply remains tight, but oil is falling on recession fears. At the same time, the momo crowd is aggressively buying stocks in the US on the belief that a recession will be avoided.
- Clearly, either the momo crowd is wrong or the oil market is wrong.
- William Dudley, the past president of the New York Federal Reserve, is saying that the stock market is misunderstanding the Fed’s inflation response.
- We have previously shared with you that three Fed officials have come out implying that the stock market is getting it wrong.
- The momo crowd in the stock market remains undeterred and continues to aggressively buy stocks. The buying is mostly focused on low quality speculative stocks.
- Fed minutes will be released on Wednesday and may offer clues as to where the Fed is heading.
- This week also brings earnings from WMT, TGT, HD, and LOW. These earnings and projections will also provide important data regarding consumer behavior. You may recall that previously both WMT and TGT were forced to cut their forecasts with special announcements.
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
Gold is falling on stronger dollar. The dollar is stronger because of the data from China.
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
Over the weekend, bitcoin crossed over $25,000. However, this morning bitcoin is falling as speculation fever cools on China data.
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 $1792, silver futures are at $20.08, and oil futures are $87.08.
S&P 500 futures resistance levels are 4318, 4400 and 4460: support levels are 4200, 4000 and 3950.
DJIA futures are up 193 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 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.
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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.
