MAG SEVEN SEE PROFIT TAKING, MOODY’S DOWNGRADES CHINA CREDIT OUTLOOK

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By Nigam Arora & Dr. Natasha Arora

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

China Credit Outlook

Please click here for a chart of China ETF ASHR.

Note the following:

  • The chart shows that at a time when the U.S. stock market has been rising, the Chinese stock market has been declining.
  • RSI on the chart shows that the Chinese market is oversold.
  • Many strategists are making calls to buy China as it is an opportunity to buy low.  ZYX Emerging has covered China for 16 years continuously.  The Arora Report ratings on China are currently suspended, but an opportunity to buy China may be near.  Please stay tuned to the ZYX Emerging Real Time Feed by The Arora Report.
  • Moody’s is cutting China’s credit outlook to negative.  This indicates that the risk of default by China has increased.  Moody’s call has been triggered by the property sector crisis and local government debt.  The largest property developer in China, Evergrande, took more than $300B, mostly from individuals, to buy properties but never built them.  Evergrande is close to liquidation.
  • The magnificent seven stocks are seeing slight profit taking.  The magnificent seven stocks are Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).  What happens to the magnificent seven stocks is very important for the following reasons:
    • S&P 500 is up 19% this year.  Excluding the magnificent seven stocks, it is up only 9%.
    • The magnificent seven stocks are very expensive.  They trade at an average forward PE of 32.  
    • 44% of stocks in S&P 500 have negative returns for the year.  
  • Important economic data is ahead.  Most important are the following;
    • JOLTS job report will be released at 10am ET.
    • ISM Services PMI will be released at 10am ET.
  • Of note is earnings from J.M. Smuckers (SJM), the producer of JIF peanut butter and Foldgers coffee.  Revenues rose 7% year-over-year, including a 4% increase in volume and 3% increase in price.  This indicates that consumers are still willing to pay higher prices.
  • 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.
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Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple (AAPL).

In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Tesla (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 *** 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 *** in oil in the early trade.  Smart money is *** in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin (BTC.USD) is continuing to hold its gains as many bitcoin promoters are confidently promoting $100,000 bitcoin by the year end.  Keep in mind that these promoters have an agenda and have been consistently wrong in the past.

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.

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Gold futures are at $2047, silver futures are at $24.90, and oil futures are at $72.91.

S&P 500 futures are trading at 4561 as of this writing.  S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are down 130 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.

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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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Picture of 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.

Picture of 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.

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