QUAD WITCHING DRIVING AI STOCKS INCLUDING NVIDIA HIGHER, MORE ONE MONTH LOWS THAN HIGHS IN NASDAQ

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By Nigam Arora & Dr. Natasha Arora

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

Deteriorating Internals

Please click here for a chart of Nasdaq 100 ETF (QQQ).

Note the following:

  • The chart shows that Nasdaq 100 is way overextended above the support zone.
  • Overextended markets work only as long as momentum stays high.  If momentum stops, the market tends to pullback.
  • The chart shows that the volume is low as the market drives higher.  This indicates lack of conviction.
  • RSI on the chart shows Nasdaq 100 is very overbought.  Risk and reward are two sides of the same coin.  A market as overbought as this one is risky.
  • In The Arora Report analysis, prudent investors should pay attention to deteriorating internals of Nasdaq 100.  There are more one month lows than one month highs in the Nasdaq 100 stocks.  
  • The stock market, including AI stocks such as Nvidia (NVDA), Hewlett Packard Enterprise (HPE), Dell (DELL), Supermicro (SMCI), and Taiwan Semiconductor (TSM), are being pulled higher by quadruple witching.  Tomorrow is quadruple witching.    In quadruple witching, stock index futures, futures options, stock options, and single stock futures expire.  Quadruple witching often leads to volatility.
  • There are many factors driving NVDA stock higher.  An important factor driving NVDA higher is the market mechanic of gamma squeeze.  If you own NVDA stock or want to own NVDA stock, you should strive to understand gamma squeeze in NVDA.  The easiest way is to listen to the podcast titled “MARKET MECHANICS: IMPACT OF DEALERS’ GAMMA POSITION CHANGE ON THE STOCK MARKET
  • There are two pieces of news that are noteworthy for investors.
    • Hackers claim that they have breached Apple’s (AAPL) source code.  If true, it would sully Apple’s image of invisibility.
    • Elon Musk says that Dell is assembling half of the racks for the super computer being built by xAI.
  • Initial jobless claims came at 238K vs. 237K consensus.  We have previously emphasized the importance of looking at the four week moving average.  The four week moving average is rising, indicating that the jobs picture is beginning to weaken. 
  • 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
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Housing

Housing data is weaker than expected.  Here are the details:

  • Housing starts came at 1.277M vs. 1.385M consensus.
  • Building permits came at 1.386M vs. 1.455M consensus.

England

The Bank of England (BoE) has decided to hold rates steady.  The vote was seven to two.  BoE is showing a dovish tilt.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Meta (META) and NVDA.

In the early trade, money flows are neutral in Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT), and Tesla (TSLA).

In the early trade, money flows are negative in AAPL.

In the early trade, money flows are positive 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.

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.

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 *** in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin (BTC.USD) is range bound. The post holiday buying is being met with selling in bitcoin.

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.

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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 $2352, silver futures are at $30.17, and oil futures are at $81.25.

S&P 500 futures are trading at 5571 as of this writing.  S&P 500 futures resistance levels are 5622 and 5748: support levels are 5500, 5400, and 5256.

DJIA futures are down 31 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.

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.

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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 seven 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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Picture of 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.

Picture of 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.

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