By Nigam Arora
To gain an edge, this is what you need to know today.
Blowout Jobs Report
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 moving up in the early trade.
- The chart shows the blowout jobs report is driving the stock market to the magnet.
- The chart shows previous attempts to break above the magnet failed.
- Here is the key question: Will the jobs report trigger a breakout above the magnet?
- The jobs report is known as the mother of all reports due to its importance. Here are the details:
- Non-farm payrolls came at 130K vs. 68K consensus.
- Non-farm private payrolls came at 172K vs. 60K consensus.
- Unemployment rate came at 4.3% vs. 4.4% consensus.
- Average work week came at 34.3 vs. 34.2 consensus.
- Average hourly earnings came at 0.4% vs. 0.3% consensus.
- In The Arora Report analysis, yesterday Kevin Hassett was preparing the markets for a lower number. As a result, Wall Street was positioned for a weaker jobs number in the range of 20K – 30K. The initial jump on release of the jobs report may simply be the result of positioning, and there may be reversal as the day goes by.
- As of this writing, the stock market is perceiving the strong jobs report as a positive. However, prudent investors need to keep in mind that there is also a negative. The strong jobs report will make it difficult for the Fed to cut interest rates. The momo crowd is expecting several interest rate cuts. The prevailing wisdom is that politics will prevail over the data and the Fed will cut interest rates irrespective of the data. In The Arora Report analysis, if the Fed proceeds as the markets believe, the risk of inflation rising will have to be taken into account by prudent investors.
- Prudent investors should keep in mind that the Iran risk is increasing. President Trump is threatening military action if a deal is not reached. Oil is rising. The stock market momo crowd is oblivious. President Trump is saying he may send a second aircraft carrier to Iran. The U.S. is considering intercepting ships carrying Iranian oil just like the U.S. did with Venezuela. The strategy was successful in Venezuela. In The Arora Report analysis, such a strategy is highly risky in Iran because unlike Venezuela, Iran is likely to retaliate. Iran could easily block the Strait of Hormuz. The Strait of Hormuz is very narrow and a significant portion of the world’s oil is shipped through the strait.
- Among notable earnings, Robinhood (HOOD) reported less than consensus and whisper numbers. HOOD has pulled back from $153.86 in October to $76.98 as of this writing in the premarket. The reason is crypto trading is very profitable for Robinhood. As cryptos have pulled back, crypto trading volume has dropped.
- Among important earnings Vertiv (VRT), Cloudflare (NET), Shopify (SHOP), Generac (GNRC), Diodes (DIOD) and Lattice Semiconductor (LSCC) are reporting earnings better than expected. Lyft (LYFT), Mattel (MAT), Zillow (Z, ZG), and Astera Labs (ALAB) are reporting earnings below consensus. As a full disclosure, ZYX Short has a short position in Z, and the position is nicely profitable.
- In other significant news, the FDA has rejected Moderna’s (MRNA) flu vaccine. This is important because the media has been heavily promoting MRNA stock and as a result, MRNA has been one of the best performing stocks this year.
- The airspace over El Paso, Texas has been closed. The reason is not clear as of this writing. This may turn out to be important for the markets.
- 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 positive in Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), Nvidia (NVDA), Microsoft (MSFT), Meta (META), and Tesla (TSLA).
In the early trade, money flows are positive 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 was aggressively buying gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL) before the jobs report. The jobs report brought in selling. Smart money is inactive 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 *** oil in the early trade.
For longer-term, please see oil ratings.
Bitcoin
As a member of The Arora Report, you were ahead of the curve – when bitcoin (BTC.USD) was hitting $120K and everyone was uber bullish, we were sharing with you that bitcoin whales were persistently selling bitcoin into the strength. Recently when bitcoin dipped to $60K, bitcoin whales stepped in to support bitcoin. Bitcoin rallied above $70K after whales stepped in. The rally over $70K has failed, and bitcoin is trading at $67,494 as of this writing. Bitcoin whales are stepping in again to support bitcoin from falling.
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 7005 as of this writing. S&P 500 futures resistance levels are 7200, 7500, and 7700 : support levels are 7000, 6780, and 6500.
DJIA futures are up 278 points.
Gold futures are at $5089, silver futures are at $84.65, and oil futures are at $65.40.
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.
