By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Strong Economic Data
Please click here for a chart of Dow Jones Industrial Average (DJIA, DJI, INDU)
Note the following:
- The chart shows that DJIA has shown a winning streak for 13 consecutive days. DJIA is higher this morning in the premarket. If the trend continues, today may be the 14th consecutive high in DJIA.
- The chart compares DJIA to S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.
- The chart shows that DJIA is leading the other two leading indexes during this winning streak.
- Previously, DJIA had been lagging because it does not contain all of the magnificent seven stocks that have led the rally. The magnificent seven stocks are Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
- It is said that history does not repeat itself, but it rhymes. In many ways, the DJIA winning streak is similar to pre-crash streaks of the past.
- DJIA had a 13 day winning streak in January 1987. In October 1987, the stock market crashed, losing 22% in one day.
- There are similarities to July 1929 when DJIA had a winning streak of 11 days. Subsequently, the stock market experienced the famous 1929 crash.
- It is important to note that neither the 1929 nor 1987 streak resulted in a crash immediately.
- The economic data released this morning is very strong. Here are the details:
- Q2 GDP-Adv came at 2.4% vs. 1.6% consensus.
- Q2 GDP Deflator-Adv came at 2.2% vs. 3.0% consensus.
- Durable orders came at 4.7% vs. 1.0% consensus.
- Durable orders ex-transportation came at 0.6% vs. 0.2% consensus.
- All of the foregoing economic data represents lagging indicators. The Arora Report focuses on leading indicators. A leading indicator released this morning is initial jobless claims. Initial claims came at 221K vs. 233K consensus. This indicator carries heavy weight in the proven, adaptive ZYX Asset Allocation Model with inputs in ten categories. The model is adaptive in that it changes itself with market conditions. This adaptiveness is in part responsible for the success of The Arora Report. Please click here to see how the adaptiveness is achieved. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.
- There is aggressive buying in the premarket prompted by blowout earnings from META. META, along with five other magnificent seven stocks, is in the ZYX Buy Model Portfolio. The Model Portfolio provides buy zones, target zones, recommended quantities, stop zones, and updates as needed. The Model Portfolio is a good place to start for most investors.
- As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.
The European Central Bank (ECB) decided to increase interest rates by 25 basis points in line with the consensus. ECB stated that future decisions will be to ensure rates are sufficiently restrictive.
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 continues to trade below $30,000. Bitcoin bulls are disappointed that whales did not run it up on the Fed announcement like they have in the past.
Our very, very short-term early stock market indicator is positive but can quickly turn 🔒. 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 up, and bonds are ticking down.
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 $1958, silver futures are at $24.86, and oil futures are at $79.84.
S&P 500 futures are trading at 4629 as of this writing. S&P 500 futures resistance levels are 4713, 4770, and 4826: support levels are 4600, 4460, and 4400.
DJIA futures are up 94 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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