By Nigam Arora
To gain an edge, this is what you need to know today.
Dip Buyers Save The Market
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows QQQ was weakening going into Friday morning.
- The chart shows mindless dip buying saved the stock market.
- The chart shows that the morning today started with buying in QQQ, but as the morning has progressed, sellers have become dominant.
- The VUD indicator is the most sensitive measure of net supply and demand in real-time. The orange represents net supply and the green represents net demand. The VUD indicator is mixed in the early market today.
- The stock market was weakening for three reasons:
- Four Fed presidents had come out against a December rate cut, defying intense political pressure to cut rates. When four Fed presidents came out against a rate cut, investors had to pay attention to the data. The data does not support a rate cut. In The Arora Report analysis, based on the existing data so far, a rate cut in December will be a wrong thing for the Fed to do. However, if the Fed does the wrong thing, it will drive stocks, bitcoin, and gold higher in the short term. The stock market was counting on the Fed doing the wrong thing.
- Concerns have been mounting around large debt financing of AI data centers. A bond offering from data center company Applied Digital (APLD) became a poster child of the troubles when APLD was forced to pay 10% interest. This is a very important subject for prudent investors. For those who want next level knowledge, a podcast that tackles this subject will be available soon in Arora Ambassador Club.
- Market internals have been weakening.
- Did anything change in any of the three foregoing reasons that brought in very aggressive buying? The answer is nothing has changed. All three concerns are still there. The buying came from mindless dip buyers. The limited extent of the analysis of mindless dip buyers results in aggressively buying stocks on any dip.
- Among technically oriented investors, concern has arisen from the Hindenburg omen. This is a warning signal that has fired five times recently. Here are the two important points for the Hindenburg omen that prudent investors need to know:
- The Hindenburg omen has given a signal at every major top over the last 25 years.
- The Hindenburg omen has also given a large number of false warning signals.
- Another concern is that many technically oriented investors believe small caps, represented by Russell 2000 ETF IWM, are showing a head and shoulders pattern. This is a bearish pattern. Prudent investors should note that the pattern is not well formed, and, as such, is suspect.
- On the positive side, Warren Buffett’s Berkshire Hathaway (BRK.B) bought $4.9B worth of Alphabet (GOOG, GOOGL) stock.
- Now that the government is open, a deluge of economic data is ahead.
- Several important earnings are ahead, including Home Depot (HD), Lowe’s (LOW), Target (TGT), Nvidia (NVDA), and Walmart (WMT).
- 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.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Amazon (AMZN) and Alphabet (GOOG).
In the early trade, money flows are negative in Apple (AAPL), Meta (META), Nvidia (NVDA), Microsoft (MSFT), and Tesla (TSLA).
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 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 ***. Wall Street machines will jump on whichever direction the stock market starts going and exaggerate the move. 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 *** 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) promoters have been out in full force urging their followers to buy the dip in bitcoin. Retail investors continue to buy bitcoin aggressively. Prudent investors should note that every rally attempt over the weekend and this morning failed, in spite of low liquidity. This is different from the recent pattern where low liquidity allowed bitcoin promoters to push bitcoin higher.
Markets
Interest rates and bonds are range bound.
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 6739 as of this writing. S&P 500 futures resistance levels are 6780, 7000, and 7200 : support levels are 6500, 6256, and 6131.
DJIA futures are down 99 points.
Gold futures are at $4067, silver futures are at $50.43, and oil futures are at $60.31.
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.
