By Nigam Arora
To gain an edge, this is what you need to know today.
Positioning
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 only a minor dip in the stock market in the early trade on the Iran war due to Wall Street’s positioning.
- The chart shows that the stock market is still above zone 1 (support).
- The chart shows the magnet that has proven to be formidable resistance.
- As most investors react to the headlines with emotion, prudent investors need to understand that positioning is the most important factor related to the Iran war.
- The stock market is positioned bullishly with very little concern for risks.
- The reason behind the bullish positioning is the prevalence of the following beliefs:
- Iran will act according to the U.S. script.
- The war will be short lived.
- There will be quick regime changes in Iran. (Some U.S. officials are claiming that the regime has already changed.)
- The new regime in Iran will be very friendly to the U.S.
- The Strait of Hormuz will remain open.
- Oil and gas infrastructure will not be damaged.
- Every tiny dip in the stock market is a buying opportunity.
- In jubilation over a quick U.S. victory, the stock market will break above the magnet shown on the chart.
- Prudent investors need to know that the risk lies in Wall Street’s bullish positioning with little concern for risk. Think of it like everyone being on one side of the boat. Everything will be fine if most of the prevailing beliefs described above come true. However, just like a boat with everyone on one side can capsize in a storm, the same thing can happen to the stock market if the reality turns out to be somewhat different from the prevailing beliefs.
- Prudent investors need to know that there are early signs that Iran is not following the U.S. script.
- The belief was Iran will not attack its neighboring countries with U.S. bases, especially those friendly to Iran. So far, this assumption has proven incorrect. Iran is attacking neighboring countries.
- The assumption was Iran will not attack oil and gas infrastructure.
- Oman has shut down gas production.
- Qatar is stopping production at some facilities due to drone attacks.
- A refinery in Saudi Arabia has been shut down due to damage from debris from intercepted drones.
- Tanker traffic in the Strait of Hormuz has dwindled because tankers cannot get insurance.
- Defense stocks are moving higher. In The Arora Report analysis, for the long term, the two top defense stocks to own are RTX (RTX) and Boeing (BA). These are in the ZYX Buy Core Model Portfolio. The top defense ETF to own is ITA. ITA is in the ZYX Allocation Model Portfolio. Drone stocks AeroVironment (AVAV), Draganfly (DPRO), Kratos Defense & Security Solutions (KTOS), and Red Cat (RCAT) are moving higher. In The Arora Report analysis, these stocks are richly priced, with the exception of RCAT, and can easily fall if the war ends quickly.
- Oil and gas stocks are moving higher. The best large cap oil stock to own is Shell (SHEL) and Chevron (CVX), and the best oil service stock to own is Halliburton (HAL). These are in the ZYX Buy. The best oil services ETF to own is OIH. OIH is in the ZYX Allocation Model Portfolio.
- Natural gas stocks are moving higher. The best natural gas stocks to own are EOG Resources (EOG), Range Resources (RRC), EQT (EQT), and Expand Energy (EXE). EOG is in the ZYX Buy Core Model, and the other stocks are in the portfolio that surrounds the ZYX Buy Core Model Portfolio.
- Gold and silver are moving higher. Gold miner Newmont (NEM) and silver ETF (SLV) are in the ZYX Buy Core Model Portfolio. Gold ETF (GLD) is in the ZYX Allocation Portfolio.
- For those who want next level information, listen to the podcast titled “FROM FEAR TO STRATEGY: INVESTMENT GAME PLAN FOR IRAN UNCERTAINTY.” There is also a podcast in Arora Ambassador Club titled “MARKET MECHANICS: POSITIONING.”
- In an important development away from the war, optical stocks, such as Applied Optoelectronics (AAOI), Corning (GLW), nLIGHT (LASR), and Coherent (COHR), are jumping on the news that Nvidia (NVDA) will invest $2B in Lumentum (LITE).
- This morning in the early trade, Wall Street is buying the Iran dip to front run blind money. Wall Street expects to sell stocks at higher prices to blind money this afternoon. Blind money is the money that flows into the stock market on the first two days of the month without any analysis or regard for market conditions.
- ISM Manufacturing Index will be released at 10am ET and may be market moving.
- 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.
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 negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
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 *** 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 buying gold in the early trade and is *** 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
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. Bitcoin first moved down on the news of the Iran war but then moved up on the news of the death of Ayatollah Khamenei.
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 6813 as of this writing. S&P 500 futures resistance levels are 7000, 7200, and 7500 : support levels are 6780, 6500, and 6256.
DJIA futures are down 554 points.
Gold futures are at $5411, silver futures are at $94.15, and oil futures are at $72.19.
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.
