By Nigam Arora
To gain an edge, this is what you need to know today.
New Oil Sanctions
Please click here for a chart of oil futures (CL_F).
Note the following:
- The chart shows a strong move up in oil.
- The chart shows when an Arora buy signal was given in anticipation of new sanctions on Russia oil. In The Arora Report analysis, at this time, stocks, long duration bonds, gold, and bitcoin are very expensive. Oil is the only major asset that is cheap.
- The chart shows when new Russian oil sanctions were announced.
- The VUD indicator is a proprietary Arora Report indicator that is the most sensitive measure of net supply and demand in real-time. The orange represents net supply and the green represents net demand. The chart shows the VUD indicator has mostly been green, indicating net demand for oil.
- Here are the key points about the sanctions on Russian oil:
- The new sanctions are on two Russian giants Lukoil and Rosneft and their subsidiaries.
- The sanctions bar companies and countries from doing business with Lukoil and Rosneft. To understand the sanctions, think of a Chinese or Indian company that tries to buy oil from Russia getting hit with U.S. sanctions.
- The U.S. is able to enforce these sanctions because the dollar is the reserve currency, and any bank that facilitates any transaction with Russian oil can be sanctioned.
- In the world of investments, nothing is straightforward. On one hand, oil is cheap and in theory, the sanctions on Russia should reduce the supply of oil and thereby increase the price of oil. On the other hand, investors need to be mindful of the following:
- India and China have been the two major buyers of Russian oil. Now that Russia cannot easily sell oil to India and China, Russian oil may be sold in the black market at a steep discount. Depending upon how much the black market develops, oil prices could drop instead of rising.
- President Trump is imposing sanctions on Russian oil to force Russia’s President Putin to strike a peace deal with Ukraine. Russia needs money to keep its war machine going. Oil exports are the major source of money that supports Russia’s military industrial complex. President Putin could give in, and in such an event, oil prices could collapse.
- For the foregoing reasons, it is important for investors to keep the risk control measures in place given in the post on the oil buy signal.
- In The Arora Report analysis, at this time when the stock market is excited about the Fed cutting interest rates, prudent investors should be thinking about the impact of higher oil prices. Higher oil prices can cause an uptick in inflation and thereby make it more difficult for the Fed to cut interest rates. This is especially important because the stock market has already counted the chickens before they have hatched.
- Rising oil prices is also a negative for airlines such as American Airlines (AAL), United Airlines (UAL), and Delta Air Lines (DAL) as well as for cruise lines such as Carnival (CCL) and Royal Caribbean Cruises (RCL).
- Quantum computing companies are working for the government to potentially take a stake. Initially in overnight trading, quantum computing stocks such as IonQ (IONQ), Rigetti (RGTI), Quantum Computing (QUBT), and D-Wave Quantum (QBTS) experienced major up spikes. However, as of this writing in the premarket, more than half of the gains have evaporated for the following reasons:
- The investment from the government is likely to be small such as $10M in each company.
- There is a report the Secretary of Commerce is saying that no active discussions are taking place at the highest level.
- We previously shared with you the blow-off top signal on gold. In The Arora Report analysis, gold was well on its way to a significant pullback when the news of Russia oil sanctions hit. Russian oil sanctions are giving the gold rally a second wind. It is important to remind you of The Arora Report analysis that the seeds of the current gold rally go back to when the U.S. sanctioned Russia after Russia attacked Ukraine. Those sanctions prompted countries such as Turkey, China, and India to start buying more gold to reduce their dollar holdings.
- We previously shared with you another meme resurgence in Beyond Meat (BYND), 1-800-Flowers.com (FLWS), and Krispy Kreme (DNUT). To the dismay of the meme crowd, at least temporarily, the meme rally has collapsed.
- Tesla (TSLA) earnings impact the stock market sentiment. Higher expenses overshadowed record revenue, causing Tesla to come below consensus and whisper numbers. However, sentiment is being cushioned by more visibility of Tesla about to embark on volume production of Optimus robots.
- Overall, according to the proprietary Arora Report sentiment indicator, the sentiment is remaining in the extreme positive zone. In addition to the overall sentiment, investors should pay attention to the momo crowd sentiment because momo crowd sentiment is responsible, in large part, for the latest run up in the stock market, including space stocks such as AST SpaceMobile (ASTS), nuclear stocks such as Oklo (OKLO), NANO Nuclear Energy (NNE), and NuScale Power (SMR), data center stocks such as CoreWeave (CRWV), IREN (IREN), and Nebius (NBIS), and critical mineral stocks such as MP Materials (MP), Critical Metals (CRML), USA Rare Earth (USAR), TMC The Metals Company (TMC), and Lithium Americas (LAC).
- Yesterday morning we wrote:
After the sentiment among the momo crowd being extremely positive for a long time, the momo crowd sentiment has swung to negative quickly in the matter of a couple of days.
- The momo crowd sentiment took another hit yesterday as losses mounted in their favorite stocks. However, today, momo crowd sentiment may pick up on the prospect of the government taking a stake in quantum computing stocks.
- 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.
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 Amazon (AMZN), Alphabet (GOOG), and Microsoft (MSFT).
In the early trade, money flows are neutral in Apple (AAPL) and Meta (META).
In the early trade, money flows are negative in Nvidia (NVDA) and TSLA.
In the early trade, money flows are neutral in S&P 500 ETF (SPY) and negative 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 *** 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 *** oil in the early trade. Smart money is *** oil 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 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.
S&P 500 futures are trading at 6733 as of this writing. S&P 500 futures resistance levels are 6780, 7000, and 7200 : support levels are 6500, 6256, and 6131.
DJIA futures are down 80 points.
Gold futures are at $4145, silver futures are at $48.83, and oil futures are at $61.94.
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.
