By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Stock Market Direction
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 the stock market has pulled back on Powell’s remarks.
- The chart shows the stock market is near the top band of the support zone.
- The chart shows that in the early trade, the dip in the stock market is being bought.
- The FOMC rate decision came as expected yesterday. However, Powell trampled on the speculation of a rate cut in March. Please read yesterday’s Afternoon Capsule for details.
- Fed Chair Powell said labor availability is a big factor in the Fed’s decision.
- Previously, the Fed was trying to drive unemployment higher. The reason was in traditional economics, higher unemployment brings down inflation.
- This cycle has defied traditional economics thus far. Inflation is coming down while unemployment remains very low.
- In The Arora Report analysis of Powell’s press conference, the Fed is not worried about inflation running back up. However, the Fed is concerned about inflation being sticky and staying above their target. If the employment picture stays strong, it will be difficult for the Fed to cut interest rates as the Fed does not want inflation to get stuck above their target. This is the reason prudent investors are paying very close attention to the jobs report.
- For next-level knowledge on the Fed’s interest rate decisions, listen to the acclaimed podcast “Protect Yourself: The Dirty Secret Of The President And The Fed.” We are beginning work on a follow up podcast.
- The jobs report, known as the mother of all reports, will be released tomorrow at 8:30am ET.
- In The Arora Report analysis, the jobs report tomorrow is the key to the near-term direction of the stock market. If the jobs report is strong, the stock market will likely tumble. If the jobs report is weak, the stock market will likely run up.
- Weekly initial jobless claims came at 224K vs. 215K consensus. This indicates that the jobs picture is still very strong, but the data is beginning to weaken.
- Q4 Productivity-Prel came at 3.2% vs. 2.1% consensus.
- Q4 Unit Labor Costs-Prel came at 0.5% vs. 1.9% consensus.
- In The Arora Report analysis, higher productivity and lower unit labor costs are excellent pieces of news for the U.S. economy. Higher productivity and lower labor costs mean higher profits for U.S. companies. Higher profits mean higher stock prices in the long run.
- Additional potentially market moving data will be released today:
- ISM Manufacturing Index will be released at 10am ET.
- Earnings from Apple (AAPL), Amazon (AMZN), and Meta (META) will be announced after the close.
- 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.
Real Estate Jitters
Aozora Bank, a Japanese institution, fell more than 20% due to losses related to U.S. commercial real estate.
Deutsche Bank (DB), the Germany banking giant, quadrupled its U.S. real estate loss reserves to €123M.
New York Community Bancorp stock (NYCB) fell 38% related to real estate losses.
Regional bank ETF (KRE) had the worst daily loss since Silicon Valley Bank went bankrupt in March 2023.
In The Arora Report analysis, so far the stock market is ignoring the issues related to commercial real estate, but prudent investors need to keep an eye. This was one of the factors behind the signal yesterday for changes in the protection band.
Magnificent Seven Money Flows
In the early trade, money flows are positive in AAPL, AMZN, Alphabet (GOOG), Microsoft (MSFT), META, Nvidia (NVDA), and Tesla (TSLA).
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 *** in the early trade. Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
OPEC+ Monitoring Committee is recommending no change in oil output.
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 moving with the sentiment in speculative junk stocks.
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 down, and bonds are ticking up.
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 $2059, silver futures are at $22.83, and oil futures are at $76.78.
S&P 500 futures are trading at 4888 as of this writing. S&P 500 futures resistance levels are 4918, 5020, and 5210: support levels are 4852, 4826, and 4770.
DJIA futures are up 3 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.
