HUGE POST DEBATE UNCERTAINTY FOR INVESTORS, NEW DATA ON FED’S FAVORITE INFLATION GAUGE AND PERSONAL SPENDING

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By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

PCE

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 attempting to break to a new high.
  • RSI on the chart shows that there is a technical set up for the stock market to go higher.
  • The chart shows that the stock market is significantly above the support zone.  This indicates that buying here does not have a favorable risk reward ratio.
  • The chart shows low volume.  This indicates a lack of conviction.
  • We previously shared with you that economists have become good at predicting the Fed’s favorite inflation gauge PCE.  PCE data came as expected.  Here are the details:
    • Headline PCE came at 0.0% vs. 0.0% consensus.
    • Core PCE came at 0.1% vs. 0.1% consensus.
  • The U.S. economy is 70% consumer based.  For this reason, prudent investors pay attention to personal income and personal spending.  Personal spending dropped.  This is inline with the other data of the consumer pulling back that we have been sharing with you.  Here are the details:
    • Personal spending came at 0.2% vs. 0.3% consensus.
    • Personal income came at 0.5% vs. 0.4% consensus.
  • First and foremost, The Arora Report is politically agnostic.  The Arora Report strives to be objective and rigorously analytical to help investors.  To make money in the markets, it is important for investors to separate their political views from investing.  Here are the key points:
    • The presidential debate has thrown huge uncertainty in the American economy and U.S.’s international standing.
    • Prudent investors should wait for the air to clear post debate.
    • There will be winning and losing investments from the election.
    • Depending upon what happens over the coming days, changes may be made in the portfolios.
    • In The Arora Report analysis, if nothing changes, the Magnificent Seven stocks, other mega cap stocks, and fossil fuel energy stocks are the winners post debate; clean energy stocks, environmental stocks, and Chinese stocks are losers; and companies that compete with Chinese companies are the winners.
    • In The Arora Report analysis, if nothing changes, the U.S. dollar is a potential loser and gold is a potential winner.  
  • Quarter end window dressing continues.
  • 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.
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France

The first round of French elections will take place this weekend.  The far right National Rally is projected to make gains.  President Macron’s party is projected to lose.  There are significant implications from the French elections for investors.  Please see prior Capsules for details.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple (AAPL), Amazon (AMZN), Nvidia (NVDA), and Tesla (TSLA).

In the early trade, money flows are neutral in Microsoft (MSFT).

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.

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.

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 *** oil in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin (BTC.USD) is range bound.

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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 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 $2348, silver futures are at $29.78, and oil futures are at $82.10.

S&P 500 futures are trading at 5556 as of this writing.  S&P 500 futures resistance levels are 5622 and 5748: support levels are 5500, 5400, and 5256.

DJIA futures are up 4 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.

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.

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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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This post was just published on ZYX Buy Change Alert.

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Picture of Nigam Arora

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.

Picture of Dr. Natasha Arora

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.

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