By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Government Spiking Stock Market
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 drop in the stock market after the release of Producer Price Index (PPI) yesterday. The PPI data was significantly hotter than expected. Please see yesterday’s Morning Capsule for details.
- The chart shows aggressive buying on hotter inflation data by investors who believe data no longer matters.
- The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand. The chart shows the VUD has turned green, indicating net demand for stocks.
- We have been sharing with you that the narrative of “data no longer matters” is taking hold among the momo crowd. The chart shows “data no longer matters” investors prevailed. The thinking is that irrespective of the data, President Trump will succeed in getting the rate cuts he wants.
- In The Arora Report analysis, there is some merit to the thinking of the “data no longer matters” crowd. With reckless government spending, heavy government borrowing, and artificially lower interest rates, the U.S. government can succeed in spiking the stock market in the short term. In the long term, these actions are likely to be very negative. However, the momo crowd does not think about the long term.
- Retail investors are super excited and are continuing their stock buying binge. The margin debt of retail investors has now exceeded $1T. History tells us that when margin debt rises sharply, prudent investors need to be careful.
- In contrast to retail investors’ exuberance about the stock market, institutional investors are cautious.
- The Buffett effect is helping the stock market. Warren Buffet bought health insurer United Health (UNH), home builders Lennar (LEN) and D.R. Horton DHI, and steel maker Nucor (NUE). Buffett also sold a large amount of Apple stock (AAPL). Investors are focused on what Buffett bought and ignoring what he sold.
- Dow Jones Industrial Average is being helped by about a 10% move in UNH
- In important news, the U.S. is contemplating taking a stake in Intel. The stock is rising on the news. INTC is in the portfolio that surrounds the Core Model Portfolio in ZYX Buy.
- Prudent investors closely watch retail sales data as the U.S. economy is 70% consumer based. Retail sales came inline with expectations. Here is the latest retail sales data.
- Headline retail sales came at 0.5% vs. 0.5% consensus.
- Retail sales ex-auto came at 0.3% vs. 0.3% consensus.
- University of Michigan Consumer Sentiment will be released at 10am ET and may be market moving.
- President Trump and President Putin are meeting in Alaska today. The momo guru narrative is that the stock market will go up about 2000 DJIA points after the meeting. In The Arora Report analysis, President Trump has the leverage to succeed. Will President Putin be receptive? Investors should start with Arora Second Law of Investing and Trading, which states, “Nobody knows with certainty what is going to happen next in the markets.”
- 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.
China
China is the second largest economy in the world. Therefore prudent investors pay attention to economic data from China. The latest data from China is showing a weakening economy. Here are the details:
- Industrial production came at 5.7% year-over-year vs. 6.0% consensus.
- Retail sales came at 3.7% year-over-year vs. 4.6% consensus.
- The unemployment rate came at 5.2% vs. 5.1% consensus.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Alphabet (GOOG), Meta (META), and Tesla (TSLA).
In the early trade, money flows are neutral in AAPL, Microsoft (MSFT), and Nvidia (NVDA).
In the early trade, money flows are neutral in S&P 500 ETF (SPY) and negative 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 ***. 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 *** 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
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.
S&P 500 futures are trading at 6498 as of this writing. S&P 500 futures resistance levels are 6500, 6700, and 7000: support levels are 6256, 6131, and 6017.
DJIA futures are up 275 points.
Gold futures are at $3388, silver futures are at $37.89, and oil futures are at $63.41.
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.
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.
