By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Shooting The General
Please click here for a chart of Apple stock (AAPL).
Note the following:
- The Morning Capsule is about the big picture and not about an individual stock. The chart of Apple (AAPL) is being used to illustrate the point.
- In bear markets, they shoot the generals last. Apple is the biggest general there is.
- Before the generals are shot, they stage extremely strong bear market rallies.
- The chart shows an extremely strong bear market rally starting from the June low.
- The chart shows that on December 28, all of the gains from the bear market rally evaporated.
- The chart shows that on December 28, Apple stock undercut the low of June.
- The reason behind the late December selloff is that investors were taking profits in Apple to offset losses in other stocks for year end tax purposes.
- The chart shows that yesterday Apple made a lower low. Please see the Afternoon Capsule for details.
- The chart shows an RSI divergence. In plain English, this means that RSI went higher as the price went lower. This is a positive in the very short term.
Prudent investors are eagerly waiting for the Fed minutes. The reason is that the Fed raised its inflation forecast for 2023 in spite of the recent data that inflation is cooling. Fed Chair Powell said the reason was the inflation in labor wages in services. However, the Fed’s complete reasoning has never been clear for raising its inflation forecast.
We will be carefully studying the Fed minutes to gain insights, and we will share these insights with you as appropriate.
The Fed minutes will be released at 2pm ET.
JOLTS data, which shows job openings, will be released at 10am ET. This is key data as the Fed is focusing on JOLTS.
ISM Manufacturing Index will be released at 10am ET. This will give a good indication of the state of manufacturing.
The momo crowd buys ahead of key events on the hope strategy. Today is no different. The momo crowd is buying stocks ahead of the Fed minutes, JOLTS, and ISM.
In sharp contrast to the momo crowd, smart money is typically inactive ahead of key events because prudent investors understand that the events present risk.
More layoffs are coming. Salesforce (CRM), a major software company, will lay off 10% of its workforce. CRM stock is shooting up. This is going to show more managements that the way to run up their stocks is to lay off workers.
There is encouraging inflation data from France. CPI came at -0.1% vs. 0.4% consensus. Inflation data from Germany has also been encouraging.
There is also encouraging data in Eurozone Services PMI which came at 49.8 vs. 49.1 consensus.
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 range bound.
Crypto bros do not seem to have learned much from losing huge sums in 2022. Solana has surged in January, including 20% yesterday. The surge is related to the airdrop of Bonk. Bonk is a new meme coin. Crypto bros love airdrops, even though they ultimately lose money from airdrops. In an airdrop, a promoter distributes the coins that it created out of thin air for free or low cost.
Bonk shot up 24%.
Prudent investors need to look at the latest behavior of crypto bros with the knowledge that Solana is closely tied to FTX and Sam Bankman-Fried.
Our very, very short-term early stock market indicator is 🔒. 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 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 $1864 silver futures are at $24.42, and oil futures are at $74.95.
S&P 500 futures resistance levels are 3950, 4000, and 4200: support levels are 3770, 3630, and 3600.
DJIA futures are up 91 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 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.
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