By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Portfolio Construction
Please click here for a chart of Freeport-McMoRan (FCX) compared to Nvidia (NVDA).
Note the following:
- The Morning Capsule is about the big picture, not individual stocks. The charts of Freeport-McMoRan (FCX) stock and Nvidia (NVDA) stock are being used to illustrate the point.
- FCX is a major copper producer. FCX is in the ZYX Buy Model Portfolio.
- The chart shows FCX price action in the top pane and NVDA price action in the bottom pane.
- The chart shows that FCX has performed almost 100% better than NVDA for the period shown. This comes as a surprise to most investors. This illustrates the need to properly construct a model portfolio diversified by strategies. The Arora Report uses over 50 different strategies. Constructing a great portfolio is highly complex. The easiest way for most investors and investment advisors is to follow the Model Portfolios in The Arora Report.
- The reason FCX, along with other copper stocks, has done so well is optimism about China’s economy. China is a major copper user.
- Purchasing Managers’ Index is a leading indicator. The official data just released from China is positive. A PMI over 50 is considered economic expansion. China’s Manufacturing PMI moved to expansion for the first time since September of last year.
- Manufacturing PMI in China came at 50.8 vs. 50.1 consensus.
- Non-Manufacturing PMI came at 53.0 vs. 51.3 consensus.
- On Friday when the U.S. market was closed, core PCE came at 0.3% vs. 0.3% consensus. PCE is the Fed’s favorite inflation gauge.
- Fed Chair Powell said that the PCE data was inline with his expectations. Powell said that lower interest rates would not be right until the Fed is sure about inflation.
- When futures opened on Sunday evening, the momo crowd aggressively bought stock futures and continued to buy them until earlier this morning. The reason is that Wall Street often front runs the blind money.
- The blind money is the money that pours into the stock market on the first two days of a new month without any analysis and irrespective of market conditions. Blind money is not price sensitive, i.e. blind money does not care the price it is paying for the stocks. Most of the blind money is invested in the afternoon. Traders know this and they buy stocks to sell to blind money at a higher price.
- Prudent investors should note that today, at least temporarily as of this writing, is a departure from the traditional pattern. As of this writing, the rally in stock futures is fizzling. The reason is that smart money is selling into the strength.
- 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.
Turkey
There is a surprise in the Turkey elections. Opposition won the municipal elections. This may create opportunities in Turkey. Such opportunities will be in ZYX Emerging.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Microsoft (MSFT), and Tesla (TSLA).
In the early trade, money flows are neutral in Nvidia (NVDA), Meta (META), and Alphabet (GOOG).
In the early trade, money flows are negative in Apple (AAPL).
In the early trade, money flows are mixed 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 *** stocks in the early trade.
Gold
Gold is seeing aggressive buying and hitting a new high.
The momo crowd is *** 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 the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is range bound.
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 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 $2277, silver futures are at $25.35, and oil futures are at $83.28.
S&P 500 futures are trading at 5312 as of this writing. S&P 500 futures resistance levels are 5400, and 5500: support levels are 5256, 5210, and 5020.
DJIA futures are down 53 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.
