By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Shelter Is Problematic
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 pulled back from the mini resistance zone on signs that AI frenzy fever is breaking.
- The chart shows that there is buying in the stock market in the early trade.
- Yesterday the stock market dropped. The initial trigger was earnings from AI super computer maker Super Micro Computer (SMCI). Investors bitten by the AI bug were aggressively buying SMCI going into earnings. Earnings showed that SMCI was not selling as many AI servers as investors had hoped for. This caused a sell off in the AI favorite stock Nvidia (NVDA) in spite of Nvidia introducing new products the day before. Sell off in Nvidia dragged the market down.
- As a full disclosure, a signal was given in ZYX Short to short sell SMCI near the top. The position was quickly closed out at a nice profit as SMCI stock fell.
- As is their pattern, the momo crowd started buying stock futures yesterday after the close of the regular session. The momo crowd is using hope strategy, and the hope was that CPI would be benign. Buying by the momo crowd in stock futures fed on itself, leading to aggressive buying going into the release of CPI.
- RSI on the chart shows that in the short term the market is close to oversold.
- The mini resistance zone on the chart is a magnet for stocks to run to.
- CPI came mostly in line with expectations. Here are the details of the CPI data:
- Headline CPI came at 0.2% month-over-month vs. 0.2% consensus.
- Headline CPI came at 3.2% year-over-year vs. 3.3% consensus.
- Core CPI came at 0.2% month-over-month vs. 0.2% consensus.
- Core CPI came at 4.7% year-over-year vs. 4.8% consensus.
- Especially noteworthy is that shelter accounted for 90% of the rise in inflation.
- Also noteworthy is that this is the lowest back to back increase in inflation in two years.
- We have been sharing with you the data about producer price deflation in China. Since the U.S. is a big importer of Chinese goods, deflation in China is helping the U.S.
- Weekly initial jobless claims came at 248K vs. 230K consensus. This indicates that labor demand is beginning to decline. Jobless claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions. Please click here to see how this is achieved. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.
- In The Arora Report analysis, the probability of a Fed rate hike in September has now fallen to less than 10%.
- 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
Money flows in Nvidia are negative in the early trade.
Money flows are positive in the early trade in Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are positive 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.
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.
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin is range bound.
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 $1956, silver futures are at $22.82, and oil futures are at $83.67.
S&P 500 futures are trading at 4513 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 up 199 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 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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