INVESTORS PAY ATTENTION: SAUDI ARABIA AND RUSSIA MAKING FIGHT AGAINST INFLATION DIFFICULT

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By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

Difficult Fight Against Inflation

Please click here for a chart of oil futures that represent West Texas Intermediate (WTI) (CL_F).

Note the following:

  • The chart is of West Texas Intermediate crude (WTI).  WTI is the standard for the U.S.  Brent crude is the standard for the rest of the world.  Brent is trading about $3 above WTI.  $100 price for Brent is the magnet for traders.
  • The chart shows a steep trendline.
  • The main reason for the rise in oil price shown on the chart is that Saudi Arabia, in cooperation with Russia and other OPEC+ members, have successfully reduced the supply.
  • The latest government stimulus in China may increase demand for oil in China.  This is adding to the bullishness.
  • Resilient U.S. economic data and American consumers’ willingness to spend is adding to the upward pressure on oil.  In the past when gasoline prices rose, consumers would cut back on other discretionary purchases.  However, this time is proving to be different so far.  Rising gas prices are not having a negative impact on other discretionary purchases by American consumers.  The American consumer has become used to excessive spending.  Right now, lower income consumers can still borrow and higher income consumers still have savings.
  • Also contributing to higher oil prices is general risk-on sentiment generated by higher stock prices and house prices holding up in spite of higher interest rates.
  • The fear is that Saudi Arabia and Russia may want to tighten the screws on the West by trying to run up oil prices to $120 – $130.
  • For more guidance, refer to world renown oil ratings from The Arora Report. You can see the oil ratings from the top menu in the Real Time Feeds.  These ratings are based on the following:
    • Geopolitics
    • Sentiment
    • Fund Flows
    • Supply
    • Demand
    • Inventories
    • Positioning
    • Technicals
    • Risk Appetite
    • Economic Indicators
    • Currencies
  • FOMC, Bank of England, and Bank of Japan meetings are ahead this week.
  • Rising oil prices are making the job of fighting inflation difficult for the Fed and the Bank of England.
  • Japan imports almost all of the oil it uses.  Rising oil prices may force the Bank of Japan to change its loose monetary policy.  In The Arora Report analysis, if the Bank of Japan changes its loose monetary policy, it will have a negative impact on stocks in the U.S.  The reason is that there is a lot of money that has been borrowed in Japan at low interest rates and then invested in the U.S. stock market.  
  • A concern is also developing about a potential government shutdown.
  • On the positive side, early indications are that preorders for iPhone 15 are better than expected.  This is good news because Apple (AAPL) is the largest stock and carries heavy weight in the indexes.
  • After the successful IPO of ARM, excitement is building for IPOs of Instacart (CART) and Klaviyo (KVYO).  As a full disclosure, ZYX Buy from The Arora Report has signals on both CART and KVYO.
  • Saudi Arabia and Turkey are vying for the next Tesla (TSLA) factory.  Saudi Arabia is sweetening the deal with an offer of rights to purchase particular EV metals.  Elon Musk is also scheduled to meet with the Israeli Prime Minister on Monday.  Musk had previously indicated that the location for the next Tesla factory would be chosen by the end of the year.
  • In The Arora Report analysis, Saudi Arabia and other oil rich Middle Eastern countries are using their oil riches to expand into growing areas such as EVs and AI.  We are considering continuous coverage of Saudi Arabia and other Middle Eastern countries in ZYX Emerging by The Arora Report. 
  • 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.
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Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple and Alphabet (GOOG).

In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Meta (META), and Tesla.

In the early trade, money flows are mixed 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.

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 seeing aggressive buying and is now about $27,000.  The buying is due to speculation that the Fed will not raise interest rates.

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 range bound.

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.

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Gold futures are at $1945, silver futures are at $23.37, and oil futures are at $91.04.

S&P 500 futures are trading at 4491  as of this writing.  S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are up 15 points.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash or Treasury bills 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.

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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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This post was just published on ZYX Buy Change Alert.

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Nigam Arora

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

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.

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