By Nigam Arora
To gain an edge, this is what you need to know today.
Free Money Proposal
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows QQQ has been vacillating between zone 1 (resistance) and zone 2 (support).
- The chart shows QQQ is seeing selling today in the early trade as rising oil and rising yields blunt buying on the free money proposal.
- President Trump is proposing $5K in free money for every U.S. adult if the GOP wins the midterm elections. In The Arora Report analysis, here are the points prudent investors need to keep in mind:
- The free money will cost the U.S. $1.35T – $1.65T. There is no clarity how the free money will be financed. There is a suggestion of funding it with tariff money. The reality is that when it is all said and done, most of the money will be borrowed, adding to the over $40T national debt.
- Free money will be a bonanza for the stock market. There is a precedence of free money flowing into the stock market from pandemic times. Most of the money flowing into the stock market will likely go into highly speculative stocks that are touted in the media. Pumpers will have a heyday.
- Even though in the short term it would be a huge positive for the stock market, in the long term it would be a big negative.
- As the U.S. is doing its level best to isolate Iran and put heavy pressure on China and Russia to not support Iran, the U.S. pressure is not working. President Pezeshkian of Iran, President Xi of China, and President Putin of Russia will arrive in India tomorrow for a BRICS summit. President Trump has previously indicated that he does not like BRICS as BRICS continue making progress to reduce the U.S.’s dominance in the world. Prudent investors should note BRICS countries are also aligned to reduce the importance of the king dollar. If BRICS succeed, it will be a negative for the U.S. in the long term. An antidote for investors is to have a portion of their portfolios in emerging markets. Please see the Trade Management Guidelines for a starting point. ZYX Emerging has covered emerging markets continuously for almost two decades.
- The momo crowd is oblivious, but prudent investors should pay attention to an important development in Yemen. Iran backed Houthis have won the battle for the port city of Mokha. This may be a turning point in the civil war in Yemen. The reason investors should care is that Houthis may end up asserting more control over Bab el-Mandeb Strait, which is one of the most important trade routes, especially for oil these days.
- Houthi victory has triggered WTI oil to spike above $100. WTI is the U.S. standard for oil. Previously, we shared with you that Brent, which is the international standard, had gone above $100.
- The Treasury tripled its long bond buyback to $6B from $2B. The purpose was to bring long yields down.
- Prudent investors should note that the bond market responded by snubbing Treasury Secretary Bessent’s efforts. Long yields went higher instead of going lower.
- Initial jobless claims came at 206K vs. 208K consensus.
- Producer Price Index (PPI) came roughly inline. Here are the details:
- Headline PPI came at 0.4% vs. 0.4% consensus.
- Core PPI came at 0.2% vs. 0.3% consensus.
- Prudent investors should note that even though PPI is inline, 0.4% by itself is a hot number. On an annualized basis it means inflation of 4.8% at the producer level. The main reason is rising oil.
- After the release of PPI data, Fed fund futures are now indicating about a 70% probability of a rate hike next week when the Fed meets.
- Consumer Price Index (CPI) will be released tomorrow at 8:30am ET.
- University of Michigan Consumer Sentiment will be released tomorrow at 10am ET.
- 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.
Europe
At a time when the Fed has been reluctant to fight inflation, the European Central Bank (ECB) has been aggressive in fighting inflation. ECB has raised its key interest rate by 25 bps to 2.5% from 2.25%. In The Arora Report analysis, the ECB move will put additional pressure on the Fed to raise rates.
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 Apple (AAPL).
In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), Nvidia (NVDA), Microsoft (MSFT), Meta (META), 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 *** stocks 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 ***. 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. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
API crude inventories came at a draw of 0.3M barrels vs. a consensus of a draw of 1.3M barrels.
The momo crowd is *** oil in the early trade. Smart money is *** oil in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is seeing selling.
Markets
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.
S&P 500 futures are trading at 7601 as of this writing. S&P 500 futures resistance levels are 7700, 7831, and 7900 : support levels are 7318, 7194, and 7032.
DJIA futures are down 101 points.
Gold futures are at $4362, silver futures are at $64.88, and oil futures are at $100.04.
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.
