By Nigam Arora
To gain an edge, this is what you need to know today.
Deploy Cash
The adaptive ZYX Asset Allocation Model with inputs in ten categories has given a signal to deploy cash. The trigger for this move is cooler than expected Consumer Price Index (CPI). In the Arora Protection Band, cash is being reduced by 3%. Please see the Arora Protection Band And What To Do Now section below.
Cooler CPI
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 buying in the stock market after the release of CPI data.
- The chart shows that during the recent pullback the stock market did not even touch the top band of zone 1 (support) before bouncing. This indicates a stock market that wants to go higher.
- The chart shows the magnet for stock market traders.
- After cooler than expected CPI data, the probability of a move to the magnet has increased. Here are the details:
- Headline CPI came at 0.3% vs. 0.4% consensus.
- Core CPI came at 0.2% vs. 0.3% consensus.
- In The Arora Report analysis, here are the probabilities of future rate cuts after CPI data:
- 99% in October
- 90% in December
- President Trump is traveling to the APEC Summit in Korea. He is expected to meet with China’s President Xi on Thursday next week.
- President Trump is optimistic about reaching a deal with China. In addition to the overall trade, of special interest are soybeans and rare earth minerals.
- President Trump is expected to sign trade deals with 12 companies.
- University of Michigan Consumer Sentiment will be released at 10am ET.
- The FOMC meeting will start on Tuesday next week. The rate decision will be announced on Wednesday.
- In The Arora Report analysis, here are the bullish factors investors should be looking at:
- The pattern of the momo crowd is to buy ahead of the Fed rate decision. The probability is high that the pattern will repeat.
- Expect President Trump to continue making positive statements about the upcoming meeting with President Xi.
- President Trump has an incentive to spin the results of the meeting with President Xi as positive even if China stands firm.
- The momo crowd may try to front run the Trump Xi meeting.
- Blind money will flow into the stock market on the first two days of November.
- If the stock market starts moving higher, expect year end chase by money managers.
- It is important for investors to think both in strategic and tactical terms. All of the foregoing positives are tactical in nature.
- From a strategic point of view, substantial risks remain. These risks include the following:
- The Fed’s inflation target is 2%. 3% is significantly higher than 2%.
- Inflation can easily resurge.
- Valuations are very high.
- At some point, there will be over investment in AI.
- China is not going to give up its quest to replace the U.S. as the world’s superpower. In substance, any agreement with China that is cast as positive is likely, in reality, to be hollow.
- There is no solution in sight to $1.8T in budget deficit and $38T in national debt.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Apple (AAPL).
In the early trade, money flows are negative in Tesla (TSLA).
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.
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. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary 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
President Trump plans to open coastal waters for offshore oil drilling.
The momo crowd is *** in oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
JPMorgan (JPM) is going to accept Bitcoin (BTC.USD) and Ether as collateral from institutional clients.
Bitcoin is seeing buying.
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 6813 as of this writing. S&P 500 futures resistance levels are 7000 and 7200 : support levels are 6780, 6500, and 6256.
DJIA futures are up 193 points.
Gold futures are at $4092, silver futures are at $47.90, and oil futures are at $61.78.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora 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.
