By Nigam Arora
To gain an edge, this is what you need to know today.
Positive Positioning
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 the stock market is rallying this morning.
- RSI on the chart shows that the stock market had previously become oversold. Now, the chart shows RSI is rising, and the stock market is no longer oversold.
- The chart shows the major support zone (zone 1). This support zone will come into the picture if the Iran war continues longer or oil infrastructure is damaged.
- Over the weekend, there were a lot of concerns that due to the U.S. bombing Kharag Island, Monday could be a bloodbath in the stock market. However, those thinking of a bloodbath missed the point – the U.S. did not bomb oil infrastructure on Kharag Island and limited bombing only to military sites. The oil terminal on Kharag Island carries 90% of Iran’s oil exports.
- On Sunday evening, oil futures opened higher and stock futures opened lower. Oil futures quickly gave up gains. As oil futures gave up gains, stock futures rose.
- Buying in the stock market and selling in oil that started on Sunday evening has become more aggressive this morning in the early trade.
- Wall Street positioning remains positive in the stock market.
- Sentiment is very positive as Wall Street believes TACO (Trump Always Chickens Out) is around the corner.
- Last week, President Trump said that the Iran war was a “little excursion” and would be over soon. However, Iranians appear to believe a longer war is in their best interest. The prevailing consensus on Wall Street is that continued heavy bombing will help President Trump find an off ramp quickly.
- It is important for investors to not buy into one scenario but instead to look at multiple scenarios.
- In The Arora Report analysis, here are the major scenarios:
- The Iran war ends soon – 55% probability
- The Iran war continues longer – 25% probability
- Other scenarios such as lower level war – 20% probability
- Investors should start with Arora’s Second Law of Investing and Trading, which states, “Nobody knows with certainty what is going to happen next in the markets” and follow with Arora’s Third Law, which states, “Making investing and trading decisions based on probabilities is the only realistic and profitable approach.”
- Nvidia (NVDA) GTC starts today. In the past, Nvidia GTC has triggered major moves. This time the bar is much higher for Nvidia GTC. Nvidia plans to introduce a new inference chip at GTC this week. This is critical because Nvidia became the largest company in the world on the strength of its chips being used for AI training. As we go forward, inference will become extremely important. Also expect announcements related to optical networking and use of optics in semiconductors. Stocks of interest are AAOI, AMKR, LASR, GLW, HIMX, MRVL, COHR, and LITE.
- Producer Price Index (PPI) will be released on Wednesday at 8:30am ET.
- The FOMC will announce its rate decision on Wednesday at 2pm ET followed by a press conference from Fed Chair Powell at 2:30pm ET.
- Complicating the matter is option expiration on Friday. Over the last several months, option expiration has exerted a positive influence on the stock market in the expiration week. This time, there are factors that can exert both negative and positive influences in the stock market.
- 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 positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are positive 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 based on news and rumors about the war. 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
The momo crowd is *** in gold in the early trade, and this is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). 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 seeing buying on the hopium that the Iran war will end soon and “risk on” will become the trading theme.
Markets
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.
S&P 500 futures are trading at 6747 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 up 347 points.
Gold futures are at $5025, silver futures are at $80.05, and oil futures are at $95.82.
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.
