By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Stock Market At Resistance
Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).
Note the following:
- The chart shows that the stock market touched the low band of the support zone during the carry trade related drop.
- The chart shows that the stock market has aggressively rebounded after touching the low band of the support zone.
- The chart shows that the stock market is now touching the low band of the resistance zone.
- The momo crowd appears to be oblivious to the resistance zone and aggressively buying. However, smart money’s pattern is to trim when the stock market is in the resistance zone.
- RSI on the chart shows that the stock market is overbought. In spite of aggressive momo crowd buying, overbought markets tend to be vulnerable to a pullback.
- The most important event this week is Fed Chair Powell’s speech at Jackson Hole on Friday.
- Chicago Fed President Austan Goolsbee is cautious against inflation arguments from both Trump and Harris.
- Trump plans to increase tariffs. However, Goolsbee said that while tariffs increase inflation such increase is not prolonged.
- Harris proposes to ban price gouging in food and grocery. Goolsbee said that high prices are not due solely to price gouging. In an interview, Goolsbee is careful not to take sides.
- Nvidia (NVDA) stock has been the leader driving the AI frenzy. Advanced Micro Devices (AMD) has been trying to catch up but is far behind. To strengthen its AI strategy, AMD is acquiring ZT Systems for $4.9B. ZT Systems designs and optimizes cloud computing solutions. ZT Systems will help AMD deploy AMD powered infrastructure at scale.
- The media headlines about AMD competing with NVDA are highly misleading. In The Arora Report analysis, AMD buying ZT Systems is only a very small step and will not meaningfully impact Nvidia’s market share.
- Without a deep understanding, the momo crowd is aggressively buying AMD stock on the news.
- Layoffs in IT continue to expand. General Motors (GM) is planning to cut 1,000 software jobs. Last week, Cisco (CSCO), the networking giant, announced 4,000 job cuts.
- There has been a lot of concern about Mpox. Mpox is now spreading beyond Africa. The latest expert analysis is that Mpox will not have a severe impact in the U.S. However, prudent investors should keep a close eye on the spread of Mpox.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in NVDA, Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are neutral in Meta (META).
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
Gold is staying above $25,000.
The momo crowd is *** in gold in the early trade. Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
Initially oil was sold as Iran did not attack Israel over the weekend. However, as of this writing, aggressive buying is coming in oil.
The momo crowd is *** in oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is below $60,000. There is a disappointment that bitcoin whales did not take advantage of low liquidity during the weekend to run up bitcoin.
Normally, buying in bitcoin and buying in speculative stocks go together. However, recently a disconnect developed between the two. The disconnect continues to persist in the early trade.
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 and bonds are range bound.
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.
Gold futures are at $2528, silver futures are at $29.08, and oil futures are at $75.63.
S&P 500 futures are trading at 5586 as of this writing. S&P 500 futures resistance levels are 5622, 5748, and 5926: support levels are 5500, 5400, and 5256.
DJIA futures are up 41 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 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.
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.
