PRUDENT INVESTORS PAY ATTENTION TO CANARY IN COAL MINE – OBLIVIOUS MOMO CROWD SUPPORTING THE MARKET

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By Nigam Arora & Dr. Natasha Arora

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

Canary In The Coal Mine

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 stock market continues to move higher.
  • On SPY, $550 is the magnet for short term traders.
  • The chart shows that the market is now significantly above the support zone.  This illustrates that in the middle of the AI buying frenzy, if the momentum turns down, the momo crowd that is buying aggressively now can quickly incur substantial losses.
  • The chart shows that the volume continues to be low, indicating a lack of conviction in the momentum driven rally concentrated in AI stocks.
  • RSI on the chart shows that the stock market is very overbought.  Overbought markets tend to be vulnerable to pullbacks.
  • The market can continue to go higher on momentum, but for the longer term, this momentum will be sustainable only if the following occurs:
    • The Fed aggressively starts cutting rates.
    • AI driven productivity rises faster than The Arora Report currently projects.
  • The Arora Report has been sharing with you for a while that the consumer, especially at the low end, has spent most of the liquidity they gained from free money and other government programs.   We have also been sharing with you that the call on the low end consumer should start showing up in the data.  The just released retail sales data shows that The Arora Report calls have been spot on.
  • Prudent investors pay attention to retail sales.  The reason is that the U.S. economy is 70% consumer based.  Retail sales are a good indication of how the consumer is doing.  Here are details of the just released data:
    • Headline retail sales came at 0.1% vs. 0.3% consensus.
    • Retail sales ex-auto came at -0.1% vs. 0.2% consensus.
  • The momo crowd is oblivious and continues to aggressively buy AI stocks.
  • If it was not for the obliviousness of the momo crowd, the stock market would have dropped significantly on the weak retail sales data. The reason is that the momo crowd is taking for granted that there will be no landing.  Even smart analysts are lock, stock, and barrel investing based on a soft landing.  Retail sales are like a canary in a coal mine.
  • In noteworthy news, Fisker (FSRN), once an EV favorite of the mom crowd,  has filed bankruptcy.  The lesson for investors is that it is fine to do short term trades based on momentum, but good investments require 360 degree analysis.  Maximize risk adjusted returns by following an unbiased system with a long, proven track record such as ZYX Change Method.
  • 20-year Treasury auction results will be announced at 1pm ET and may move the market.
  • 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.
See also  QUAD WITCHING DRIVING AI STOCKS INCLUDING NVIDIA HIGHER, MORE ONE MONTH LOWS THAN HIGHS IN NASDAQ

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).

In the early trade, money flows are neutral in Meta (META).

In the early trade, money flows are negative in Amazon (AMZN) and Alphabet (GOOG).

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 *** 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 *** in 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.

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 down, and bonds are ticking up.

The dollar is stronger.

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 $2328, silver futures are at $29.12, and oil futures are at $79.69.

S&P 500 futures are trading at 5546  as of this writing.  S&P 500 futures resistance levels are 5622 and 5748 : support levels are 5500, 5400, and 5256.

DJIA futures are down 24 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.

See also  WEEKLY STOCK MARKET DIGEST: CROSSCURRENTS IN THE STOCK MARKET CREATING UNCERTAINTY FOR PRUDENT INVESTORS

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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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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