By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Stock Market Euphoria
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 market has slightly pulled back after penetrating the resistance zone. The fact that so far the pullback is slight is a positive.
- The chart shows that pullback was on heavier volume. In traditional analysis, this is a negative. In The Arora Report analysis, this time it is not a negative because the heavier volume was due to quadruple witching.
- The RSI pattern shown on the chart is a positive. When analyzing RSI, it is important to look at different time frames. Even though the overall pattern is positive, there is a negative divergence and RSI is overbought. At this time, this is to be interpreted as a pullback that can easily happen but the pullback should be bought.
- Friday was quadruple witching. Based on the quadruple witching, today should be a pullback based on history. However, this time offsetting any pullback are strong market mechanics to the upside.
- Market mechanics continue to be solidly to the upside.
- The sentiment remains extremely positive this morning. As we have written before, when sentiment becomes extremely positive, it is a contrary signal. In plain English, extremely positive sentiment is a sell signal. However here are the key points:
- Sentiment is not a precise indicator.
- Sentiment can stay at extreme for weeks before a sell off occurs.
- Often the sentiment sell signal is negated by sentiment moving to very positive for a few days and then moving back to extreme positive.
- As important as sentiment is, it is one of the many indicators. Investors should rely on a comprehensive 360 degree analysis provided by the adaptive ZYX Allocation Model with inputs in 10 categories. Please click here to see the 10 categories. In plain English, adaptive means the model changes itself automatically with market conditions. This model contrasts itself with most models on Wall Street that are static. Static models work for a while and then stop working when market conditions change.
- Euphoria in the stock market from Powell flip continues even though several Fed officials are pushing back.
- Atlanta Fed President Raphael Bostic said he does not see rate cuts until the third quarter.
- Chicago Fed President Austin Goolsbee said that considering rate cuts until inflation is on a path to a 2% target is an overstatement.
- We previously shared with you that New York Fed President John Williams said that it is too early to think of rate cuts.
- Will the market listen to the pushback from Fed officials? Probably not, because market mechanics are too strong to the upside. Understanding market mechanics can give you a big edge. The easiest way to understand market mechanics is to listen to the podcast in the Arora Ambassador Club.
- Thank you for your great questions regarding 2024 targets by Wall Street strategists and their calls to buy certain sectors. At this time of the year, many investors fall into the trap created by Wall Street forecasts. Consider not falling into this trap. The podcast titled “The Classic Mistake Of The New Year Projections Trap” is in post production. The podcast is in the Arora Ambassador Club.
- As important as it is to make good investments, it is equally important to not make mistakes. Mistakes can be very expensive.
- As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the protection band.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Tesla (TSLA), Nvidia (NVDA), Amazon (AMZN), and Meta (META).
In the early trade, money flows are neutral in Microsoft (MSFT).
In the early trade, money flows are negative in Apple (AAPL) and Alphabet (GOOG).
In the early trade, money flows are positive in S&P 500 ETF (SPY) and in 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.
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
The momo crowd is *** oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is range bound. There is disappointment that whales did not run it up over the weekend taking advantage of low liquidity.
Markets
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 and bonds are range bound.
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 $2039, silver futures are at $24.18, and oil futures are at $73.42.
S&P 500 futures are trading at 4780 as of this writing. S&P 500 futures resistance levels are 4826, 4918, and 5020: support levels are 4770, 4713, and 4600.
DJIA futures are up 44 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 seven 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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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.
