By Nigam Arora
To gain an edge, this is what you need to know today.
Fed Fears
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows QQQ has dipped into zone 1 (support).
- The chart shows QQQ is making a lower low than the prior low.
- The chart shows that QQQ has very quickly given up the gains from the government opening euphoria.
- RSI on the chart shows QQQ is oversold. Oversold markets tend to bounce.
- A pullback to the low band of zone 1 (support) and even a slight break is a normal part of the course. What is unusual is that based on historical precedent such a move typically happens in September and October, but instead this year is happening in November.
- Assuming the upcoming data is as expected, expect money managers to start buying in year end chase. However, if the data is worse than expected and there is more evidence that the Fed will not do the wrong thing, the risk to the stock market will rise. It will be important to watch the data as it comes and also pay attention to Fed speak.
- We have been repeatedly sharing with you that, in addition to AI, the other big reason for the stock market rise has been liquidity and loose financial conditions. The consensus has been that liquidity will increase and financial conditions will become even looser in December. A part of the equation has been a strong belief that the Fed would cut interest rates in December even if the data does not justify it.
- As a member of The Arora Report, you were ahead of the curve. Yesterday morning before the stock market open, we shared with you:
Prudent investors should pay attention that at this time, four Fed presidents, Goolsbee, Musalem, Collins, and Schmid, are not calling for a rate cut in December.
- Yesterday, the stock market fell and is also seeing selling in the early trade today on the fear that the Fed may not do the wrong thing. The wrong thing to do is to cut interest rates even when the data does not justify it. The stock market is troubled that in spite of intense political pressure, four Fed presidents have the gumption to stand up for the right thing.
- In The Arora Report analysis, there is a better than 50% probability of a rate cut in December. Investors should not get carried away against or in favor of a rate cut, and instead investors should focus on the data. Due to the government shutdown, we have not been getting the data. Now that the government is open, a deluge of data is ahead.
- A near term determinant of the stock market direction will be Nvidia (NVDA) earnings and the market reaction, which are scheduled to be reported on November 19.
- Producer Price Index (PPI) and retail sales were not released this morning due to the government shutdown.
- Especially hard hit are momo accounts that were aggressively buying call options on cryptos and highly speculative stocks. Many of these accounts are now totally blown. Even those momo accounts that were buying the momo crowds favorite stocks such as Oklo (OKLO), AST SpaceMobile (ASTS), IREN (IREN), Robinhood (HOOD), and CoreWeave (CRWV) on margin have experienced margin calls leading to forced selling. This is causing inordinate pain among the momo crowd.
- 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 negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are negative 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 *** 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.
Gold
Gold and silver are being sold on concerns that the Fed may not do the wrong thing. Gold and silver benefit when the Fed does the wrong thing.
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
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
We previously shared with you when bitcoin (BTC.USD) was much higher that bitcoin whales were selling.
Two big drivers of bitcoin are liquidity and loose financial conditions. Yesterday, bitcoin ETFs saw an outflow of $870M on concerns that the Fed may not do the wrong thing. This was the second biggest one day outflow in bitcoin ETFs. As of this writing, bitcoin is trading around $95K.
Bitcoin promoters are out in force, trying to convince retail investors to double down on bitcoin.
Markets
Interest rates are ticking down, and bonds are ticking up.
The dollar is range bound.
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 6693 as of this writing. S&P 500 futures resistance levels are 6780, 7000, and 7200 : support levels are 6500, 6256, and 6131.
DJIA futures are down 305 points.
Gold futures are at $4051, silver futures are at $50.50, and oil futures are at $59.84.
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.
