By Nigam Arora & Dr. Natasha Arora

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

Contagion

Please click here for a chart of  China Evergrande Group (EGRNF).

Note the following:

  • The stock market is selling off in the early trade. The excuse is the fear of contagion from the selloff in Evergrande stock in China.
  • Evergrande is the second-largest property developer in China.
  • Evergrande has diversified into a number of businesses including electric vehicles.  Not long ago, the owner of Evergrande boldly claimed that he was going to crush Elon Musk.
  • All you have to do is to look at the chart of Evergrande and it becomes evident that Evergrande was in trouble.  This was well known to good strategists who keep an eye on developments outside the United States.  Of course, the momo crowd and their gurus were oblivious.
  • Last week, stock market momo crowd gurus were giving the infallible signal and their followers rushed in to buy aggressively. Please click here to see the infallible signal given by momo’s gurus.
  • For details of the infallible buy signal, please read the Morning Capsule dated September 15th.
  • Last week we wrote:

Nobody is asking the question, “What happens if the market breaks below the channel shown on the chart?”

  • In response to the momo crowd’s infallible signal, not only we stayed cautious for the overall portfolio, we issued a short sell signal on  QQQ in ZYX Short and a buy signal on inverse ETF SQQQ in ZYX Buy.
  • Pay attention to the ‘Protection Bands and What To Do Now?’ section below.

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. To them, the dip is a buying opportunity.  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 are ticking down and bonds are ticking up.

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 $1759, silver futures are at $22.41, and oil futures are at $70.43.

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

DJIA futures are down 633 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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This post was just published on ZYX Buy Change Alert.

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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.