By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Take Partial Profits On Hedges
After the sell off, hedges have become nicely profitable. Consider taking partial profits on hedges. Please see the separate post and the “Protection Band And What To Do Now” section below.
Nibbling
Aggressive investors may consider nibbling stocks and ETFs that are entering buy zones. Nibbling simply means entering very, very small tranches in existing recommendations.
As a caution, be sure to not gorge.
Stock Market Put
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 fell to the bottom band of support zone 1.
- When the stock market approaches the bottom band of a support zone, a bounce is expected. This is exactly what happened yesterday afternoon.
- As a member of The Arora Report, you knew in advance that this was the highest probability scenario. On March 4, we wrote:
Unless President Trump changes his mind or the Fed changes its policy, the stock market going to the support zone is the highest probability scenario at this time.
- In the short term, here are the key points:
- Selling yesterday was exaggerated by margin calls to momo crowd accounts.
- At the end of the day, the stock market rallied as short sellers bought to cover on the stock market approaching the low band of the support zone.
- In the evening, futures took another leg down on expectations of a selloff in Asia.
- Markets stabilized in Asia. Chinese stocks even gained. Action in Asia brought in buying in the futures in the U.S.
- RSI on the chart shows the stock market is oversold. Oversold markets tend to bounce.
- The chart shows the selloff yesterday was on higher volume. This indicates that there was mild conviction in the selloff. The volume needed to be higher than it was to wash out the sellers – this indicates a high probability of another leg down.
- The chart shows the stock market is below the 200 day moving average. We previously shared with you:
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The 200 day moving average is very powerful, and all investors should pay attention to it.
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The reason the 200 day moving average is so powerful is because legions of investors believe in it and act on it, and the media publicizes it.
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Other than the deeply held myth, the 200 day moving average does not have any special power. Afterall, why not a 190 day or 210 day moving average?
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As you know, The Arora Report is rigorously analytical. Rigorous analysis shows that the 200 day average by itself has no magical power.
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Legions of investors buy stocks when the stock market pulls back to the 200 day moving average because they erroneously consider the 200 day moving average as a major support. There is no analytically valid basis for this myth.
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Legions of investors also sell stocks when the stock market breaks below the 200 day moving average. Again, there is no analytical basis for this belief.
- Below are extremely important points for prudent investors to fully grasp. The Arora Report is politically agnostic. Our sole objective is to help investors maximize the wealth they generate over their lifetimes.
- During President Trump’s first term, the stock market had a Trump put. In plain English, a Trump put meant that Trump did not allow a significant drop in the stock market.
- Every time the stock market started to drop during his first term, Trump jumped into action. For example, in December 2018, when the stock market started falling on the Fed raising interest rates, Trump relentlessly berated Fed Chair Powell. Ultimately, Powell lost his spine and reversed course. Powell’s reversal caused the stock market to start a mega party. In the process, Powell sowed the seeds of inflation.
- When Trump was re-elected, it was natural for investors to believe that once again the stock market had a Trump put. Prudent investors need to remember that investors suffer from recency bias. In plain English, recency bias means that most often, investors believe that the road ahead will be the same as the road behind.
- This time, Trump has experience from his first term. Instead of claiming the glory of the stock market going up during his presidency, Trump appears to have a bigger fish to fry. The bigger fish is to truly make America great again.
- An easy way for prudent investors to understand what Trump appears to be wanting to do it to think of investors in the U.S. as addicts who have been continuously fed intoxicating substances by the U.S. government over the last 20 years. With borrowing and spending, it got so bad that no one would even talk about detox. Whether you like Trump or dislike Trump, the fact is that he is the first president since Ronald Reagan who appears to have the guts to take the country through a detox. Here is the key question for investors – will Trump carry through a full detox, or will he get distracted along the way?
- In the long run, detox is good for the country and for investors. In the short run, detox may upset the apple cart.
- No one can deny that the U.S. government cannot continue with the following:
- Massive borrowing and spending
- Growing the national debt to unsustainable levels
- Transferring massive wealth from the U.S. to other countries such as China
- Paying for highly inefficient and bloated bureaucracy as well as massive frauds
- Paying for the defense of Europe
- The JOLTS report will be released at 10am ET and may be market moving.
- Consumer Price Index (CPI) is ahead on Wednesday at 8:30am ET, and Producer Price Index (PPI) will be released on Thursday at 8:30am ET.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Tesla (TSLA).
In the early trade, money flows are neutral in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), and Meta (META).
In the early trade, money flows are negative in Alphabet (GOOG) and Apple (AAPL).
In the early trade, money flows are like a yoyo 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.
Very Very Short-Term Indicator
Our very, very short-term early stock market indicator is ***. The reason is that whichever direction that stock market starts moving, Wall Street’s machines will jump in that direction, exaggerating the move. It is important to note that Wall Street’s machines are simply going to be reactive, not proactive. 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 are ticking up, and bonds are ticking down.
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 5624 as of this writing. S&P 500 futures resistance levels are 5748, 5926, and 6017: support levels are 5622, 5500, and 5400.
DJIA futures are up 2 points.
Gold futures are at $2918, silver futures are at $32.97, and oil futures are at $66.70.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The 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.
