By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Major Buying Opportunity Ahead
Please click here for a chart of 20+ Year Treasury Bond ETF (TLT).
Note the following:
- The chart shows that The Arora Report call that was made on August 2 was very timely and spot on.
- The chart shows the dramatic drop in TLT.
- The chart shows that the volume on the drop yesterday was a record. In The Arora Report analysis, this is one indication of potential capitulation. In general, it pays to buy when a capitulation occurs. However, this is only one of the several important capitulation indicators. For those wanting next-level information, listen to the podcast in Arora Ambassador Club titled “The Ten Secrets Of Epic Capitulation Riches.”
- RSI on the chart shows that TLT is oversold and beginning to bounce. This indicates that if the macro data is favorable, TLT can move up quickly.
- In The Arora Report analysis, the short interest in bonds right now is likely the highest ever. Assuming our analysis is correct, if favorable macro data is released, TLT can experience a major short squeeze and run up.
- In The Arora Report analysis, all of the foregoing is only short term. For the long term, The Arora Report has a negative view of bonds due to high debt levels, high deficits, and persistent inflation.
- Weak ADP data this morning is lifting bonds, and in turn, stocks. ADP is the largest private payroll processor in the country. It uses its data to give a glimpse of the jobs picture ahead of the official jobs report that will be released on Friday. ADP employment change came at 89K vs. 150K consensus.
- There are three pieces of data ahead that can dramatically move TLT, and in turn, the stock market.
- ISM Non-Manufacturing Index will be released today at 10am ET. The consensus is 53.7.
- Initial claims will be released at 8:30am ET on October 5. The consensus is 225K. Initial claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions. Please click here to see how this is achieved. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.
- The jobs report will be released at 8:30am ET on October 6. The consensus for non-farm private payrolls is 150K. The consensus for the headline is 158K.
- If the economic data is such that the bonds turn up, the market mechanic of year end chase will start kicking in. If this market mechanic turns out to be to the upside, expect a major rally and a buying opportunity in the stock market. There are never any guarantees. For this reason, it is important to stay in tune with the new data as it comes in. Understanding market mechanics can give you a big edge. For example, about two thirds of the market rise this year is due to market mechanics. For those who want next-level information, a podcast titled “Market Mechanics: Gain An Edge From Year End Chase ” will go live in Arora Ambassador Club today.
- 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 positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), and Tesla (TSLA).
In the early trade, money flows are negative in Apple (AAPL) and Meta (META),
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 *** 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
OPEC+ left production unchanged.
API crude inventories came at a draw of 4.210M barrels vs. a consensus of a draw of 0.092M barrels.
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 range bound.
Markets
Our very, very short-term early stock market indicator ***. 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.
Gold futures are at $1843, silver futures are at $21.51, and oil futures are at $87.54.
S&P 500 futures are trading at 4274 as of this writing. S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4200, 4000, and 3950.
DJIA futures are up 34 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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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.
