By Nigam Arora & Dr. Natasha Arora
Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report.
Please scroll down for the section ‘Protection Bands and What To Do Now.’
QUADRUPLE WITCHING BLAMED ON SLOW PROGRESS FOR MOMO INFALLIBLE BUY SIGNAL
To gain an edge, this is what you need to know today.
Blame The Quad Witch
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 progress in the stock market after momo’s infallible buy signal.
- So far the progress is slow in spite of aggressive buying by the momo crowd.
- Momo is blaming the slow progress on quadruple witching.
- Today is quadruple witching. In quadruple witching, stock index futures, futures options, stock options, and single stock futures expire. Quadruple witching may increase volatility.
Taxes
So far, the stock market has ignored higher taxes that are coming. Now the concerns are beginning to emerge in trading circles. Is the capital gain tax hike retroactive? If not, it may cause some selling.
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 🔒.
Gold
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒.
For longer-term, please see oil ratings.
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.
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.
Gold futures are at $1767, silver futures are at $22.83, and oil futures are at $72.12.
S&P 500 futures resistance levels are 4600 and 4900: support levels are 4400, 4318, and 4200.
DJIA futures are down 31 points.
Protection Bands and What To Do Now?
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or short-term bond funds 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.
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.
CONSUMERS ACCELERATE BUYING BINGE
To gain an edge, this is what you need to know today.
Buying Binge
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:
- August Retail Sales Ex-auto came at +1.8% vs. -0.2% consensus. Headline Retail Sales came at +0.7% vs. -0.7% consensus.
- The chart shows American consumers have accelerated their buying binge. The reason appears to be free money such as an extra $300 per month per child tax credit payments that the government is sending. Where is the government getting all of this money to send free money to consumers? Of course, you know the answer – the government is borrowing more.
- The biggest beneficiary of the government borrowing, sending free money and consumer buying binge is China. The vast majority of the goods that are being bought are being imported from China.
- The chart shows the progress from the infallible buy signal. Please see yesterday’s Morning Capsule for details.
Jobless Claims
Weekly Initial Claims came at 332K vs. 320K consensus.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒stocks in the early trade. Smart money is 🔒.
Gold
Money is moving out of gold and into stocks as the momo crowd pursues the infallible buy signal in stocks.
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is 🔒 oil in the early trade. Smart money is🔒.
For longer-term, please see oil ratings.
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.
Interest rates are ticking up and bonds are ticking down.
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 $1763, silver futures are at $23.12, and oil futures are $72.09.
S&P 500 futures resistance levels are 4600 and 4900: support levels are 4460, 4400, and 4318.
DJIA futures are up 7 points.
MOMO BUYING STOCKS ON GURUS SENDING INFALLIBLE BUY SIGNALS
To gain an edge, this is what you need to know today.
Infallible Buy Signals
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:
- Gurus following traditional technical analysis are sending buy signals.
- Some are claiming that their signals are infallible.
- The chart shows a channel.
- The chart shows that this morning in the early trade the market is bouncing off the lower channel line.
- In the period shown on the chart, the market has bounced off the lower channel line four different times and gone higher. What could be more infallible than a signal that has worked four times?
- Nobody is asking the question, “What happens if the market breaks below the channel shown on the chart?”
- The answer to the above question is that there is significantly more downside compared to the upside. This makes the probability adjusted risk reward of buying here unfavorable. On the other hand, the probability adjusted risk reward of selling here for a short term trade with a very tight stop is favorable.
- The chart shows that RSI is oversold and has the look of an early bounce.
- The chart shows that the prior four dips in RSI led to a market bounce.
- To those with superficial knowledge, RSI is a confirmation of the bounce from the lower channel line. To them, it makes the signal doubly infallible.
- Here is a question you need to ask yourself, “If doubly infallible signals could be given based on a few lines on a chart, wouldn’t there be millions of billionaires?”
- Investors need to keep front and center Arora’s Second Law of Trading And Investing: Nobody knows with certainty, what is going to happen next in the markets.”
- At times, when everybody is on one side, it makes sense to take a contrary position with strict risk controls.
- It is also important to quickly admit when a thesis is wrong and make a change.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒.
Gold
The momo crowd 🔒 gold in the early trade. Smart money is 🔒.
For longer-term, please see gold and silver ratings.
Oil
API reported a draw in crude inventories of 5.437M barrels vs. 3.903M barrels consensus. Oil is ripping on this bullish data.
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒.
For longer-term, please see oil ratings.
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.
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.
Gold futures are at $1799, silver futures are at $23.83, and oil futures are at $72.21.
S&P 500 futures resistance levels are 4460, 4600, and 4900: support levels are 4400, 4318, and 4200.
DJIA futures are down 6 points.
INFLATION STILL HIGH BUT SOME COMPONENTS COOLED
To gain an edge, this is what you need to know today.
Consumer Price Index
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- QQQ is more sensitive to inflation compared to S&P 500 ETF (SPY) or Dow Jones Industrial ETF (DIA).
- The chart shows when Consumer Price Index (CPI) data was released.
- The chart shows the move up in QQQ on the release of the data.
- 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 that as the price has risen after the release of CPI, the net demand for stocks is lagging.
- Here are the key details of the CPI:
- CPI came at 0.3% vs. 0.4% consensus.
- Core CPI came at 0.1% vs. 0.3% consensus.
- On a year-over-year basis, CPI is up 5.3%. It was up 5.4% in July.
- The components of CPI that were widely expected to cool are cooling. For example, used car prices are down 1.5%. Did anyone expect used car prices to keep on rising at the rate they were rising? After all, the bump in buying used cars during the pandemic is over.
- We have previously written that the way the government measures CPI is flawed. For example, shelter prices rose 0.2%. However, house prices have risen tremendously and over a period of time, this will start getting reflected in higher rents.
- Does anyone expect employers to take back the recent rise in wages?
- This number will give the Fed another fig leaf to continue to print money.
- This number will also embolden politicians to borrow recklessly.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒.
Gold
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒.
For longer-term, please see gold and silver ratings.
Oil
U. S. gasoline prices are hitting a seven-year high.
There is concern that Storm Nicholas will impact oil production in the Gulf.
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒.
For longer-term, please see oil ratings.
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.
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.
Gold futures are at $1798, silver futures are at $23.84, and oil futures are $71.05.
S&P 500 futures resistance levels are 4600 and 4900: support levels are 4460, 4400, and 4318.
DJIA futures are up 116 points.
STOCK MARKET REBOUNDS ON HOUSE DEMOCRATS WANTING TO VIOLATE BIDEN’S PROMISE
To gain an edge, this is what you need to know today.
House Democrats
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows that the market is rebounding this morning.
- The chart shows that both support and resistance are nearby.
- The stock market momo crowd is excited about the new proposal from House Democrats.
- House Democrats are looking at the corporate tax rate of 26.5% instead of 28% proposed by Biden. Trump had lowered the corporate tax rate to 21%.
- House Democrats are looking at raising capital gains tax to 25% instead of 39.6% proposed by Biden.
- The exciting thing about the proposal for the momo crowd in the stock market is twofold:
- The promise has been that the $3.5 trillion Biden plan will be fully financed with additional taxes.
- The plan by House Democrats increases taxes a lot less than the Biden plan. How will the shortfall in revenues be made up? You already know the answer – more heavy borrowing. You also know that the momo crowd in the stock market loves borrowing. The prevailing wisdom is that reckless borrowing has only benefits and no adverse consequences.
- There is still considerable uncertainty about the budget. However, it is becoming clearer that Democrats will likely violate the promise of fully financing the big budget with taxes.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒.
Gold
The momo crowd is 🔒 gold in the early trade. Smart money is🔒.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is 🔒 oil in the early trade. Smart money is🔒.
For longer-term, please see oil ratings.
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.
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 $1790, silver futures are at $23.61, and oil futures are at $70.58.
S&P 500 futures resistance levels are 4600 and 4900: support levels are 4460, 4400, and 4318.
DJIA futures are up 218 points.
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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.
