By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Good News For The Economy
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 is at the breakout line.
- The chart shows that the breakout line has been a support.
- The chart shows the stock market has been making lower highs since the market failed to break above the micro resistance zone. This is a negative for the stock market.
- Here is the key question for investors: Will the stock market break below the breakout line and move towards the support zone?
- Selling is coming in the premarket on the strong jobs report. The reason for selling is that the momo crowd was hoping for a weak jobs report so that the Fed would cut interest rates. The momo crowd is addicted to lower interest rates running the stock market higher and higher.
- In The Arora Report analysis, the strong jobs report is good for the U.S. economy. It is also good for the stock market in the long run. However, in the short run, the strong jobs report may wring out the excessive speculation by the momo crowd.
- Also in the short run, prudent investors should note that the stock market is priced for perfection. Any time valuation is priced for perfection, there is a higher risk in the short term.
- Here are the details of the jobs report:
- Nonfarm payrolls came at 256K vs. 154K consensus.
- Nonfarm private payrolls came at 223K vs. 140K consensus.
- Average hourly earnings came at 0.3% vs. 0.3% consensus.
- Average work week came at 34.3 hours vs. 34.3 hours consensus.
- Unemployment rate came at 4.1% vs. 4.2% consensus.
- Yields are rising. The ten year yield is sitting at 4.784% as of this writing. Five percent is the magnet. In The Arora Report analysis, even though the indexes have been able to ignore rising yields so far due to aggressive buying by the momo crowd, the market will have a difficult time ignoring rising yields if the ten year starts hitting 5%. The momo crowd has been buying because the momo crowd does not do any deep analysis. They are oblivious to the rising yields. The momo crowd is primarily driven by hopium, momentum, and pumpers.
- In The Arora Report analysis, the probability of a 7% – 10% correct has increased to 60%.
- The University of Michigan Consumer Sentiment will be released today at 10am ET. It may be market moving.
- 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
- The protection band is not being changed at this time, but members may consider adjusting their positions within the protection band as per personal preference. There are two reasons for no change in the protection band at this time:
- Earnings season is ahead. If earnings are good, the stock market may be able to resist rising yields longer.
- Bonds are now very oversold. For this reason, bonds may see a technical bounce. The bounce in bonds means yields pulling back. If yields pull back, the stock market will rally.
Magnificent Seven Money Flows
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) in 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.
Very Very Short-Term Indicator
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.
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
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 seeing selling after the jobs report.
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 5898 as of this writing. S&P 500 futures resistance levels are 5926, 6017, and 6131: support levels are 5748, 5622, and 5500.
DJIA futures are down 357 points.
Gold futures are at $2704, silver futures are at $31.03, and oil futures are at $77.03.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The 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.
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.
