By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Negative Pattern
Please click here for a chart of Nvidia stock (NVDA).
Note the following:
- The chart shows that NVDA stock opened higher yesterday. The higher opening was the result of more good news, pump during the holiday the day before, and continuing momentum from retail investors rushing in head long to buy.
- The chart shows that the stock closed lower than the prior trading day.
- The foregoing is a negative pattern that shows up as a bearish engulfing candle on a day chart.
- The pattern needs confirmation. Confirmation will be achieved if there is follow through to the downside today.
- The chart shows in the early trade, there is follow through to the downside.
- The momo crowd has been aggressively buying the dip.
- The chart shows that in spite of aggressive momo crowd buying, the VUD indicator was orange yesterday. Orange indicating net supply of stock. VUD indicator is the best way to ascertain net supply/demand in real time and is one of many proprietary indicators of The Arora Report. Proprietary indicators give you big edges.
- If the incessant momo crowd buying causes the stock to close higher than the lower low shown on the chart, the pattern will be negated.
- A similar pattern occurred in NVDA stock on March 8, 2024. The pattern was followed by an approximate 20% drop in NVDA stock.
- Setting technicals aside, when a stock goes down on good news, it is a sign that a stock is getting over owned. In plain English this means that the stock is running out of buyers willing to buy at higher and higher prices, at least temporarily.
- NVDA is now becoming a cult stock and many investors are emotional about it. Newer members please note, members of The Arora Report are long NVDA stock from $12.55, and NVDA is a large position in The Arora Report Model Portfolio.
- The notional value of quadruple witching today is about $5.5T. In quadruple witching, stock index futures, futures options, stock options, and single stock futures expire. Quadruple witching often leads to volatility.
- A big part of the moves in the stock market this week have been related to quad witching. Often, but not always, moves related to quad witching reverse the following week.
- S&P Global PMIs will be released at 9:45am ET. Existing home sales and leading indicators will be released at 10am ET. These data may be market moving, but the market’s primary driver will be option expiration.
- 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.
Europe
Stocks in Europe are weaker due to disappointing PMI data. Here are the details:
- Flash Manufacturing PMI came at 45.6 vs. 48.0 consensus.
- Flash Services PMI came at 52.6 vs. 53.5 consensus.
- The foregoing data is projecting slower growth.
Magnificent Seven Money Flows
In the early trade, money flows are neutral in Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are negative in NVDA.
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.
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 seeing selling along with other speculative tech stocks. Bitcoin has now fallen below $65,000.
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 range bound.
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 $2376, silver futures are at $30.33, and oil futures are at $8143.
S&P 500 futures are trading at 5539 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 7 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.
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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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.
