STRONG SEASONALITY FOR THE NEXT TWO WEEKS, BLIND MONEY, RELIEF RALLY ON FAR RIGHT WIN IN FRANCE

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By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

Strong Seasonality

Please click here for a chart of Nasdaq 100 ETF (QQQ).

Note the following:

  • The chart shows that QQQ is levitating but stalled near the high.
  • The chart shows that RSI has pulled back, indicating loss of internal momentum.
  • The chart shows that QQQ is significantly above the support zone.  This indicates that there is high risk in this market that investors are ignoring for the time being.
  • The chart shows that the volume is low, indicating lack of conviction.
  • Historically, the foregoing set up often leads to a big move.  The move gets exaggerated in whichever direction the stock market initially starts going.
  • QQQ is entering a period of very strong seasonality.  Over the last 24 years, QQQ has consistently been strong over the first two weeks of July.  
  • In July, typically stocks are strong because blind money flows into Wall Street for the new quarter.  Blind money is the money that investors send to Wall Street without any analysis and without any consideration for market conditions.
  • Blind money influx is followed by money flowing into Wall Street because investors feel good about the July 4 holiday.
  • Paradoxically, low volume makes it easy for the momo crowd to push the stock market higher.   
  • Historically, when the stock market is up as much as it is this year, it ends the year even higher.
  • Investors should also be aware that a dip in the market in the period of a late August to October is quite common.
  • In The Arora Report analysis, in the middle of all the bullishness, prudent investors should keep in mind the following important factors:  
    • Sentiment is extremely positive.  At the extremes, sentiment is a contrary signal.  In plain English, this means the current extreme positive sentiment is a sell signal.  As we have been sharing with you, it is important to pay attention to sentiment, but sentiment is not a precise timing signal.  
    • Bonds are starting to see selling on the prospect of a Republican sweep after Biden’s debate performance.  
    • Market gains are heavily concentrated in AI stocks.  This is not a sign of a healthy market.  
  • Markets are also seeing a relief rally after an impressive win by Marine Le Pen’s far right National Rally party.  There are two reasons for the relief rally.
    • As impressive as the win is, it is less than feared.
    • Macron’s party and left leaning parties are racing to stop Le Pen’s momentum in the second round.
  • In The Arora Report analysis, the relief rally may not last as investors begin to focus on the long term impact of a far right win in France.  
  • The meme crowd is trying to resurge again.  Even though the meme crowd sustained huge losses, the meme crowd’s playbook has not changed.  Their main technique is engineering short squeezes.  Online pet supply retailer Chewy (CHWY) has become the latest meme stock with Keith Gill taking a $245M stake.
    • Meme crowd darling GameStop (GME) is coming under pressure on the prospect of the meme crowd moving away from GME and towards CHWY.
  • For prudent investors, the meme crowd will continue to provide short term trading opportunities.  Prudent investors need to keep in mind that the meme crowd at its core is simply a crowd ganging up to manipulate certain stocks.
  • 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
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Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), Meta (META), Microsoft (MSFT), and Tesla (TSLA).

In the early trade, money flows are neutral in Nvidia (NVDA).

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.

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 *** oil in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin (BTC.USD) is seeing buying along with tech stocks.

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.

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Interest rates are ticking up, and bonds are ticking down.

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.

Gold futures are at $2337, silver futures are at $29.50, and oil futures are at $81.98.

S&P 500 futures are trading at 5534 as of this writing.  S&P 500 futures resistance levels are 5622 and 5748: support levels are 5500, 5400, and 5256.

DJIA futures are up 41 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.

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.

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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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Picture of Nigam Arora

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.

Picture of Dr. Natasha Arora

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.

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