By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Please click here for a chart of oil futures (CL_F).
Note the following:
- The chart shows when Hamas attacked Israel.
- The fear was that Iran would open a second northern front against Israel, escalating the Middle East war.
- The U.S. responded by sending two aircraft carrier groups to the Middle East to deter Iran and its proxies from opening a northern front against Israel.
- The falling trendline on the chart shows that investors came to believe there was a rethink in Iran as it appeared not to directly fight the U.S.
- The latest drop in oil shown on the chart came after the U.S. sent a nuclear submarine.
- The indication from our sources is that Iran is concluding that fighting the U.S. directly will be a losing proposition.
- RSI on the chart shows that oil is now very oversold.
- Temporarily, the U.S. military might has won. However, prudent investors need to keep in mind that the Middle East is very volatile and things can change very quickly.
- The U.S. is staying on the offensive. The latest is that U.S. fighters bombed a weapons depot used by Islamic Revolutionary Guard of Iran in Syria.
- Oil coming down is deflationary.
- Oil coming down is raising hopes that the Fed will soon start cutting rates.
- As speculation builds of the Fed cutting rates, there is a distinct possibility of a second short squeeze leg in bonds. If the second short squeeze leg in bonds starts, it in turn will trigger another rally in the stock market.
- For the time being, stocks have to contend with technically overbought conditions.
- 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.
Jobless claims show that the jobs picture remains strong. Initial jobless claims came at 217K vs. 220K consensus. Jobless claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions. Please click here to see how this is achieved. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.
China Facing Deflation
China is facing deflation. October CPI fell 0.1% vs. 0.0% consensus.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), and Meta (META).
In the early trade, money flows are negative in Tesla (TSLA) and Apple (AAPL).
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.
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.
The momo crowd is *** oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin (BTC.USD) has moved over $37,000. Retail investors are rushing into bitcoin on speculation that whales will take advantage of the lack of liquidity over the weekend to run bitcoin to $40,000.
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 opens6
Gold futures are at $1951, silver futures are at $22.76, and oil futures are at $76.42.
S&P 500 futures are trading at 4410 as of this writing. S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318. and 4200.
DJIA futures are up 87 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.
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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