By Nigam Arora
To gain an edge, this is what you need to know today.
Inflection Points
Please click here for a chart of leveraged semiconductor ETF (SOXL).
Note the following:
- Semiconductors reflect the AI trade, and SOXL is the momo crowd’s favorite.
- The chart shows that yesterday SOXL approached the low band of zone 3 (support) but did not touch it.
- The chart shows that yesterday SOXL rallied from the lows and closed near the day’s high.
- The chart shows that SOXL volume was heavy yesterday.
- The chart shows the nine day RSI reached 0.0, the most extreme oversold level RSI can be. The chart shows that during the period shown on the chart, RSI has never been this low.
- The chart shows the breakout in the October 2 – 6 period that carried SOXL to zone 2 (resistance) failed.
- Historically, the sum total of the foregoing pattern leads to an inflection point with a short term rally.
- Bonds hit a low after release of Consumer Price Index (CPI) data on October 14. Since then, bonds have been rallying as money flew out of AI stocks and into bonds.
- In The Arora Report analysis, just like semiconductors, based on historical patterns, bonds are also at an inflection point and can continue to rally.
- Prudent investors need to keep three important points front and center:
- It is good to know history as history often rhymes, but it does not always repeat itself.
- Technical patterns can be helpful in the very short term, but the longer term moves come from the macro.
- A large number of analysts choose to use only one form of analysis: macro analysis, fundamental analysis, technical analysis, or quantitative analysis. Analysis of some of the smartest analysts who follow only one form of analysis is often spot on when market conditions favor their approach but often totally wrong when market conditions do not favor their approach.
- The Arora Report is unique in that The Arora Report system combines the best elements of macro analysis, fundamental analysis, technical analysis, and quantitative analysis with proprietary overlays of the ZYX Asset Allocation Model, ZYX Change Method, and Arora Protection Band.
- Here is an important observation from The Arora Report analysis that can help investors going forward. A strong correlation has developed between the AI trade and yields. The reason is the economy is being driven by the AI trade, and the AI trade is behind a big part of inflation. Anytime the AI trade starts faltering like it did starting Wednesday, money starts flowing into bonds and yields fall as happened Wednesday and Thursday. This is especially noteworthy because the Producer Price Index (PPI) yesterday was hot. Traditionally, a hotter PPI would have caused yields to spike higher, but instead, yields fell because of all of the money flow into bonds and out of the AI trade.
- Yesterday, we shared with you the fear in neocloud CoreWeave (CRWV) bonds with the yield reaching 15%. Prudent investors should note that the CoreWeave founders have been protecting themselves by selling $3.3B of CRWV stock since the IPO. This is a reminder that smart money always protects itself. In contrast, the momo crowd does not take risk into account and goes all in. You are smart money. The best way for most investors to protect themselves and participate in the upside at the same time is to follow the Arora Protection Band.
- The foregoing is very important, especially at this time, since at this time 191 of S&P 500 stocks are in a bear market.
- Adding to the positive sentiment is a speech from Fed Chair Warsh. Warsh has consistently telegraphed that he does not want to give forward guidance. In his speech, Warsh stuck to his guns and said nothing about changing interest rates in the upcoming Fed meeting. Wall Street is taking Warsh’s silence as an indicator that the Fed will not raise interest rates in October.
- You have been ahead of the curve with The Arora Report analysis on interest rates as we have been sharing with you for a while that the Fed was unlikely to raise interest rates in October.
- Oil is pulling back on Iran’s President Pezeshkian saying Iran is not seeking a nuclear weapon and is open to dialog.
- Adding to the excitement this morning is Elon Musk showing off a levitating car. Tesla (TSLA) is using cold-gas thrusters from SpaceX (SPCX) to achieve performance. Tesla showed the car leaping over other cars and flipping in midair. In The Arora Report analysis, do not expect production of levitating cars from Tesla anytime soon. Other than getting people excited, there is no commercial value at this time.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
Eurozone
Eurozone September CPI came at 0.6% vs. 0.6% consensus. In The Arora Report analysis, it is an open question what the European Central Bank (ECB) will do at its next meeting.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Apple (AAPL), Microsoft (MSFT), and Tesla (TSLA).
In the early trade, money flows are neutral in Amazon (AMZN), Alphabet (GOOG), and Meta (META).
In the early trade, money flows are negative in Nvidia (NVDA).
In the early trade, money flows are positive in S&P 500 ETF (SPY) and mixed in 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.
Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary 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.
Gold
The momo crowd is *** in gold in the early trade. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
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
Interest rates are ticking up, and bonds are ticking down.
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.
S&P 500 futures are trading at 7807 as of this writing. S&P 500 futures resistance levels are 7831, 7900, and 8000 : support levels are 7795, 7733, and 7626.
DJIA futures are up 57 points.
Gold futures are at $4189, silver futures are at $57.71, and oil futures are at $95.87.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora Protection Band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash, Treasury bills, short term fixed income, 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.
A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.
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.
