By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

Breakout  

Please click here for a chart of semiconductor ETF (SMH).

Note the following:

  • We have often shared with you that semiconductors are a leading sector and all investors should pay attention to them.
  • Our Model Portfolios are over weighted in semiconductors.
  • The chart shows that semiconductors have broken out.  Many gurus are getting excited about this breakout and issuing proclamations that the entire market will follow as has been the case several times in the past.
  • The momo crowd is getting more excited from the bullish proclamations and aggressively buying.
  • We always encourage investors to dig deeper.  When you dig deeper, you will find that the breakout in SMH is not because there is high tide for semiconductors but is only one component of the ETF – it is AMD with a strong up move.  For this reason, at least temporarily, investors should ignore this bullish signal.  Investors should watch other components of the ETF to see if they start breaking out.
  • Also, note from the chart that the breakout is on low volume.  This indicates a lack of conviction.
  • The chart also shows that the breakout is running into selling as evident by the red candle.

‘Spiritual Opium’

The Chinese government continues its mission to reform Chinese society.  In the latest move, video games were branded ‘spiritual opium.’  Important video game stocks such as NTES, TCEHY, and XDNCF are plunging.  After watching the stocks plunge, there is a walk back with a much softer tone.

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 🔒.

Gold

The momo crowd is 🔒 gold in the early trade. Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒.

For longer-term, please see oil ratings.

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 and bonds are range-bound.

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 $1815, silver futures are at $25.60, and oil futures are $69.49.

S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

DJIA futures are up 57 points.

Protection Bands and What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒  in cash or treasury bills or short-term bond funds 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.

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Nigam Arora

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

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.