By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Busiest Earnings Week
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 at the top of the top band of the support/resistance zone.
- Where the stock market goes from here will come down to earnings.
- This is the busiest earnings week. 222 of 500 S&P 500 companies report earnings this week.
- Most important earnings are from four megacap tech stocks.
- Google (GOOG, GOOGL) and Microsoft (MSFT) report Tuesday after market close.
- Meta (META) reports Wednesday after market close.
- Amazon (AMZN) reports Thursday after market close.
- Wall Street’s fear gauge VIX has appeared broken on the surface. The media has been full of pronouncements that VIX is broken.
- The reality is that VIX is not broken and has been working as intended. However, it appears broken because the character of the options market has changed.
- VIX is calculated based on 30 day options. VIX was developed when 0DTE did not exist.
- Now over 40% of options volume is in 0DTEs that expire the same day.
- CBOE is responding to the popularity of 0DTE with VIX1D – a one day volatility index.
- Just like you can not trade VIX, you can not trade VIX1D.
- There are futures based on VIX. There are options on futures, and there are ETFs.
- The Arora Report expectation is that in due course, there will be tradeable products linked to VIX1D. CBOE is saying that it will consider such products if there is demand.
- Due to the enormous influence of 0DTE on the markets these days, it is important for all investors, including long term investors, to develop an in-depth understanding of 0DTE. Listen to the podcast titled “Market Mechanics: Understand Zero-Day Options To Gain An Edge.” If you are interested in a podcast on VIX1D, please write to email@example.com.
- In The Arora Report analysis, the introduction of VIX1D will make market mechanics even more influential than they are right now.
- An actionable item from the foregoing is the protection band that strikes the appropriate balance between various cross currents.
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 trading above $27,000.
Bitcoin halving is scheduled for 2024. There are an increasing number of predictions that bitcoin could run to $100,000 in anticipation of halving.
In bitcoin halving, rewards for mining new bitcoin blocks are reduced by one-half. This is an artificial way to inflate the price of bitcoin.
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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 $1995, silver futures are at $25.09, and oil futures are at $77.10.
S&P 500 futures are trading at 4156 as of this writing. S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.
DJIA futures are down 29 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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