By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Biggest Drop In Bears Since 2010
Please click here for a chart of AAII bull-bear survey.
Note the following:
- AAII survey is one of the components of The Arora Report proprietary sentiment indicator that we share with you.
- Bears dropped from 53.5% to 37.1% in one week. This is the biggest one week drop since 2010.
- Bulls jumped from 19.8% to 32.0% in one week.
- The survey respondents are individuals who for the most part neither belong to the momo crowd nor smart money.
- These newly turned bulls are now buying stocks, helping the stock market run higher.
Bullishness On Transfer Of Wealth To China
Over the years, trillions of dollars worth of wealth have been transferred from the US to China. The money has come out of the pockets of middle class manufacturing workers in the Midwest. Many of these workers have been forced out of a comfortable middle class lifestyle. With an eye on the November elections, the Biden administration is getting more serious about removing about $300B of tariffs on Chinese goods. In the short term, such a move will reduce inflation by over 1%.
This is causing buying in the stock market in the early trade.
China Opening
China is easing COVID restrictions. This is the biggest reason for aggressive buying in stocks this morning. Here are the key points:
- Buying in US stocks in the early trade on China easing restrictions is mostly focused on speculative momo stocks. This does not make any sense from a rational point of view because for the most part, these stocks are not impacted by China. The stocks that are impacted by China’s opening are showing only small moves. The clear interpretation here is that the buying in the early trade is driven by the sentiment in the momo crowd.
- China appears to be rethinking its “common prosperity” related restrictions on large tech stocks. It appears that China is being forced to retrace because of its slowing economy. As a result, there is buying in China in BABA, JD, BIDU, and TCEHY.
- China has completed its review of ride hailing company DIDI. DIDI is being delisted. There is extremely aggressive buying in DIDI.
- Some China experts are concluding that it is time to aggressively buy Chinese stocks.
- We have continuously covered China for over 15 years in ZYX Emerging.
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.
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
There are three significant developments in oil:
- There is bullishness on China opening.
- Saudi Arabia is raising prices for its Asian buyers.
- The US has apparently secretly decided to turn a blind eye to Iranian oil exports in violation of sanctions.
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 is moving up along with aggressive speculative stocks. Bitcoin has moved to $31,417. Bulls are hoping for a move about $32,000 as that will trigger several technical buy signals.
Markets
Our very, very short-term early stock market indicator is 🔒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 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 $1856, silver futures are at $22.52, and oil futures are $118.76.
S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.
DJIA futures are up 270 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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This post was just published on ZYX Buy Change Alert.
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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.
