$2 TRILLION OPTION EXPIRATION – IRAN BACKCHANNEL MESSAGING CAUSES OIL COLLAPSE

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By Nigam Arora & Dr. Natasha Arora

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

Iran Backchannels

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 that the stock market is consolidating after the big rally.
  • RSI on the chart shows that the stock market is overbought in the very short term.
  • The magnet now is the mini resistance zone on the chart.
  • Financial Times is known for its sources in the Middle East.  The headline today of Financial Times is “Iran Told U.S. It Did Not Want Israel-Hamas War To Escalate (Through Backchannels).”
  • Investors who want to outperform markets have, for ages, pursued the quest of being able to read tomorrow’s newspaper today.  Over the years, there have been hundreds of times when members of The Arora Report knew in advance what subsequently appeared as newspaper headlines.  Eight days before the Financial Times headline on November 9, The Arora Report Morning Capsule stated,

The indication from our sources is that Iran is concluding that fighting the U.S. directly will be a losing proposition.

  • The foregoing is important because oil collapsed as the fear of Iran opening a second front abated.  Falling oil prices reduced inflation.  Lower inflation drives bonds higher.  Due to the market mechanic of 100:1 leverage, a massive rally was triggered in the stock market.  For those who want to take their investing to the next level, listen to the podcast in Arora Ambassador Club titled “Market Mechanics: 100:1 Bond Leverage Can Trigger Major Stock Market Moves.
  • About $2T notional value of options are expiring today. Here is the key question for investors: “Will these options be rolled over?”  The answer to this question is important.  If investors choose to roll over these options, it will move the stock market higher.  On the other hand, if investors choose not to roll over most of these options, it will put downward pressure on the stock market.
  • At The Arora Report, we are keeping close tabs on option expiration.  The result of our analysis is incorporated in the Protection Band.
  • 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 Amazon (AMZN), Microsoft (MSFT), and Apple (AAPL).

In the early trade, money flows are negative in Alphabet (GOOG), Meta (META), Tesla (TSLA), and Nvidia (NVDA).

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

Oil prices have collapsed on Iran not wanting to open a second front.

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 range bound.

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 and bonds are range bound.

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 $1986, silver futures are at $23.96, and oil futures are at $74.28.

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S&P 500 futures are trading at 4531 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 108 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.

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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 seven 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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