By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Raise Hedges
It is time to raise hedges. There will be a separate post. Also, see the Protection Band section below.
Middle East Tensions
Please click here for a chart of crude oil futures (CL_F).
Note the following:
- An Israeli air strike on the Iranian consulate in Damascus, Syria killed a top Iranian general. Iran is vowing revenge.
- The chart shows oil is rising.
- Both trendlines on the chart show a bottoming pattern in oil.
- The upper trendline on the chart shows that oil is threatening to break out.
- Rising oil means higher gasoline prices.
- The general American public tends to measure inflation by gas prices. Higher gas prices means higher inflation expectations.
- The Fed does not want inflation expectations to rise. The reason is that as inflation expectations rise, it becomes a self-fulfilling spiral.
- Rising oil works against momo gurus’ narrative that investors should buy stocks as there is nothing to worry about in regards to inflation. Keep in mind that momo gurus’ real job is to persuade investors to buy stocks under the disguise of analysis. This is the reason investors should be very careful about what they hear from momo gurus. Investors should rely on an independent source of analysis where the sole agenda is the wellbeing of investors.
- ISM Manufacturing Index came at 50.3% vs. 48.5% consensus. This indicates manufacturing is strengthening. This strong data reduces the probability of a rate cut in June.
- Yields are rising. 10-year Treasuries are hitting 4.393%. This is the highest level since November.
- Of special note for prudent investors is that in spite of blind money flooding Wall Street, the stock market is not able to rise.
- Two pieces of news are impacting the extremely bullish sentiment in a negative way this morning.
- Tesla (TSLA) deliveries came at 387K vs. 457K consensus.
- The rate increase for Medicare Advantage is less than anticipated. This is causing selling in CVS, ELV, UNH, and HUM.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Apple (AAPL), and 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 *** in the early trade.
Gold
The momo crowd is *** 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 *** in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Whales are taking profits on bitcoin (BTC.USD).
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.
Gold futures are at $2276, silver futures are at $25.74, and oil futures are at $84.83.
S&P 500 futures are trading at 5261 as of this writing. S&P 500 futures resistance levels are 5400, and 5500: support levels are 5256, 5210, and 5020.
DJIA futures are down 319 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 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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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 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.
