By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
China’s Red Line
Investors need to pay attention to the depreciation of the Chinese currency yuan. As of this writing, yuan is touching 7.14 against the dollar. In The Arora Report analysis, 7.15 is likely the red line of People’s Bank of China.
Depending on how China reacts, it can potentially have a significant impact on the US stock market.
Mixed New Data
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:
- There is significant new economic data this morning. The data is mixed. Here are the details.
- Retail sales came at 0.3% vs. 0.0% consensus.
- Retail sales ex-auto came at -0.3% vs. 0.0% consensus.
- Export prices fell -1.6% vs. 0.0% consensus.
- Import prices fell -1.0% vs. 0.0% consensus.
- Initial jobless claims came at 213K vs. 233K consensus.
- Industrial production came at -0.2% vs. 0.0% consensus.
- Capacity utilization came at 80.0% vs. 80.3% consensus.
- After the new data, here are the new probabilities of the Fed rate hike.
- 70% probability of a 75 bps interest rate hike
- 30% probability of a 100 bps interest rate hike
- The chart shows that the market is right at the lower trend line drawn in cyan.
- The trend line tends to provide support. Momo gurus are urging their followers to buy as they claim to know that the support will hold.
- The chart shows a red line. The breach of the level shown by the red line is potentially the point where Wall Street’s algorithms have been programmed to sell stocks.
- Due to its importance, it is worth repeating from yesterday’s Afternoon Capsule:
In The Arora Report analysis, there are likely many stops under 🔒. If this level is breached, expect hunt and destroy algorithms to kick in and take out the stops.
It is a true shame that a legion of investors who follow traditional technical analysis continue to put stops at obvious places where smarter players can take advantage by taking out the stops.
One of the many innovations of The Arora Report has been to refine the art and the science of placing stops so that they protect you but have the least probability of hitting.
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 is breaking below the psychological support of $1700 due to stronger dollar.
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 🔒 in oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin is range bound above $20,000.
Ethereum has successfully completed a very ambitious upgrade known as the Merge. The Merge allows the network to use native tokens in staking wallets. The result will be a 99% drop in energy usage.
There are significant hedge fund positions in ethereum on both the long and short sides.
Our very, very short-term early stock market indicator is 🔒 due to noise in the data. 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 $1698, silver futures are at $19.53, and oil futures are at $87.14.
S&P 500 futures resistance levels are 4000, 4200, and 4318: support levels are 3950, 3860, and 3770.
DJIA futures are down 45 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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