By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows that QQQ touched the low band of the resistance zone and reversed.
- The chart shows that going into Nvidia (NVDA) earnings, QQQ has rallied to the downsloping trendline.
- RSI on the chart shows that the stock market is coming out of the oversold condition ahead of Nvidia earnings.
- The sum total of the foregoing is the technical setup for the stock market is positive going into Nvidia earnings.
- To fully understand the landscape going into Nvidia earnings, read the Morning and Afternoon Capsules from Monday and Tuesday.
- Today is one of those very rare days when earnings of a single stock become a macro event for the entire stock market. Nvidia, king of AI, has now become the de facto king of the entire stock market.
- Expect the momo crowd to aggressively buy call options on Nvidia, AMD (AMD), Microsoft (MSFT), and semiconductor ETF SMH today.
- Expect professionals to engage in position squaring. In plain English, this means that they are going to assess their risk related to Nvidia and adjust the positions held.
- Short sellers who were going to cover their shorts ahead of Nvidia earnings have already covered their shorts.
- Wall Street positioning is very positive. Positioning is one of the important market mechanics. Understanding market mechanics can give you a big edge. Due to the high value of market mechanics, a majority of the truly helpful information is kept secret by those who know. There are several podcasts that give you a deeper understanding of market mechanics in Arora Ambassador Club.
- After yesterday’s 24.15% drop in the price of sporting goods retailer Dick’s Sporting Goods stock (DKS) on a bad earnings miss, there is a shocking cut in earnings projections from Foot Locker (FL). Foot Locker is falling 31.72% as of this writing in the premarket. In sympathy, shares of Nike (NKE), Under Armour (UA, UAA), and Lululemon (LULU) are coming under pressure.
- As shocking as earnings from DKS and FL are to the downside, earnings from teen apparel retailer Abercrombie & Fitch (ANF) are a blowout to the upside. ANF is reporting EPS of $1.10 vs. $0.17 consensus. ANF stock is up 17.20% as of this writing in the premarket.
- The stock of Peloton (PTON), the pandemic darling of the momo crowd, is falling 27.61% as of this writing to $5.06 on poor earnings and loss of subscribers. Our long time members may recall that when PTON was trading about $170, almost all analysts were recommending strong buy. The Arora Report was cautioning against buying PTON, and the call was to look for opportunities to short sell PTON. Subsequently The Arora Report gave a short sell signal on PTON, and the trade was very profitable.
- Prudent investors also realize that right after Nvidia earnings there is a risk event ahead in Powell’s speech at Jackson Hole on Friday.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
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.
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.
API crude oil inventories came at a draw of 2.418M barrels vs. a consensus of a draw of 2.9M barrels.
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin (BTC.USD) is range bound.
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 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 $1932, silver futures are at $23.95, and oil futures are at $78.42.
S&P 500 futures are trading at 4406 as of this writing. S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.
DJIA futures are up 42 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.
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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