By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Hedges Turn Very Profitable
Hedges have turned very profitable. The strategic portfolios have been protected with different kinds of hedges.
- There have been overall portfolio hedges plus cash that has protected up to 57% coming into the stock market dip. Now, partial profits have been taken. Coming into this morning, the protection band stood at up to 50%. Now after more profit taking, the protection band will stand at up to 47%.
- Hedges on individual positions
- Precious metals, including gold and silver, up to 8%
- Short positions in ZYX Short
Those who are members of all four services and were conservative came in with a combined protection of over 80% into this stock market dip.
It is time to take some profits on hedges.
- Short term portfolio level hedges are being reduced. Those who had up to 8% portfolio level short term hedges may consider taking profits on 3%.
- Consider taking partial profits on hedges on the following positions: NVDA, ADI, AMAT, INTC, JPM, META, MU, MSFT, NXPI, QCOM, TMUS, AIQ, HACK, IGV, IYW, and SMH. The process of taking partial profits on hedges is similar to taking partial profits on positions. Please see Trade Management Guidelines. Please carefully note that profits are not being taken on some individual hedges, such as those on AAPL.
There will be a separate post on portfolio hedges.
Good Jobs Report
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 prior support zone 1 has now turned into a resistance zone.
- The chart shows that earlier this morning the stock market approached the low band of support zone 2. This is a logical place for the stock market to bounce. As of this writing, a bounce is exactly what is happening.
- RSI on the chart shows the stock market has become very oversold. Oversold markets tend to bounce.
- The chart shows that the drop yesterday was on higher volume. This indicates that the momo crowd is finally booking losses. In The Arora Report analysis, most of these losses are being taken due to margin calls. The volume is not high enough to indicate capitulation. Other signs of capitulation are also missing. If the stock market bounces from here, it will be without capitulation. The market bouncing without capitulation typically does not form an enduring bottom. For those who want next level information, listen to the podcast titled “THE TEN SECRETS OF EPIC CAPITULATION RICHES” in Arora Ambassador Club.
- This morning, the stock market plunged when China announced 34% retaliatory tariffs.
- Yesterday evening, President Trump indicated that he is open to negotiations if other countries offer phenomenal deals. This is contrary to what other cabinet members said yesterday.
- In The Arora Report analysis, President Trump’s statement would have helped the stock market rally, but China retaliating gives a cover for other countries to retaliate. This was the main reason for the plunge this morning.
- The stock market started rallying from its lows on a good jobs report. Here are the details:
- Nonfarm payrolls came at 228K vs. 130K consensus.
- Nonfarm private payrolls came at 209K vs. 120K consensus.
- Average hourly earnings came at 0.3% vs. 0.3% consensus.
- Average work week came at 34.2 hours vs. 34.2 hours consensus.
- Unemployment rate came at 4.2% vs. 4.1% consensus.
- In The Arora Report analysis, the jobs report is not as good as it seems on the surface. There are many issues with this jobs report. To illustrate the point, here are two examples:
- The jobs report claims that only 4K federal employees have been laid off. Everyone knows that this is not true. It appears that the anomaly has to do with the timing of the survey.
- The prior jobs number has been revised down to 117K from 151K.
- In The Arora Report analysis, the stock market rallied from the lows on the belief that all of the uncertainty caused by tariffs has not seeped into the real economy yet.
- In The Arora Report analysis, the foregoing market belief is wrong because the stock market is not paying attention to details below the surface of the jobs report. You can not really blame the market because the jobs report was released at 8:30am ET and there has not been enough time for an average analyst to grasp the details. Having said that, the fastest guns are already reaching the conclusion we are sharing with you in this Morning Capsule.
- Fed Chair Powell will speak at 11:25am ET. At The Arora Report, we will be carefully listening to see if the Fed is planning an emergency rate cut. Powell’s speech is likely to be market moving.
- 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 negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are negative 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. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the protection band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
Our very, very short-term early stock market indicator is ***. However, note the market has recovered significantly from its morning lows as of this writing. 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 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.
S&P 500 futures are trading at 5296 as of this writing. S&P 500 futures resistance levels are 5400, 5500, and 5622: support levels are 5256, 5210, and 5020.
DJIA futures are down 1067 points.
Gold futures are at $3101, silver futures are at $30.77, and oil futures are at $61.85.
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.
