By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Market Makers Hedged
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows that QQQ touched the low band of the resistance zone and backed off.
- The chart shows that the trendline supporting the recent rise is now broken.
- RSI on the chart shows that in the very short term the stock market has become oversold.
- Early this morning, the momo crowd aggressively bought stock futures on bad news from China.
- The latest news is that Zhongzhi Enterprise, a top wealth manager, is unable to make payments on high yield investment trusts it sold to wealthy Chinese.
- In response to this situation, the banking regulator in China has set up a task force.
- In separate news, Country Garden, one of the biggest real estate developers in China, is having difficulty making payments on some of its bonds.
- The news that the Chinese regulator is setting up a task force got the momo crowd excited to buy U.S. stock futures aggressively in the early morning. The momo crowd has a good reason to buy.
- The chart shows when Silicon Valley Bank failed and the banking crisis occurred in the U.S.
- In response to the bank failures, the Fed flooded the system with liquidity.
- Some of the liquidity went into the stock market at the same time the AI frenzy was accelerating. This caused the rally that started on March 8 as shown on the chart.
- The momo crowd is hoping that the stock market will now run up because of government intervention to stop more failures in China.
- As the morning progressed, smart money took advantage of the strength generated by momo crowd buying and started selling. Smart money selling caused the early morning rally in stock futures to evaporate as of this writing.
- In a separate development, for the first time in 2023, market makers are gamma hedged. This is a major development, and prudent investors should pay attention. The reason is that about two thirds of the magnitude of the stock market rally in 2023 is attributable to market mechanics. One of the market mechanics that has helped the stock market run up is short gamma squeeze. For those who want to understand this deeply, there is a new podcast titled “Market Mechanics: Impact Of Dealers’ Gamma Position Change On The Stock Market” in post production. The podcast will be available in Arora Ambassador Club. The club has several other podcasts to help you understand market mechanics in-depth.
- In plain English, this means that some of the fuel that led to the stock market rise this year is now spent.
- 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.
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 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 🔒 stocks in the early trade.
The momo crowd is 🔒 in gold in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see gold and silver ratings.
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin (BTC.USD) is range bound.
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 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.
Gold futures are at $1942, silver futures are at $22.76, and oil futures are at $82.09.
S&P 500 futures are trading at 4473 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 36 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 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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