By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Hopium
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 after tracing a V bottom on the carry trade unwind, the stock market is in the resistance zone.
- The RSI pattern shown on the chart is such that the stock market can go either way.
- Bulls are hopeful that Powell’s speech at Jackson Hole today will trigger a breakout in the stock market to a new high.
- Powell will speak at 10am ET. In The Arora Report analysis, Powell will likely be dovish. We will be carefully listening to the speech for the following:
- The size of the September rate cut
- The pace of rate cuts beyond September
- The neutral rate
- The potential of a growth scare
- The consensus on Wall Street is that if the stock market does not break out above the resistance zone shown on the chart on Powell’s speech, the stock market will break out on Nvidia (NVDA) earnings.
- Nvidia earnings will be released on August 28 after the close. Whisper numbers continue to ratchet up as analysts compete to generate business.
- The best way for prudent investors to think about the market now is that almost everyone is on one side of the boat. The boat will continue to cruise just fine as long as there is no turbulence. However, the slightest turbulence can cause trouble because almost everyone is on the same side.
- The chart shows when the stock market recently fell on the unwind of the carry trade. The unwind was due to the Bank of Japan (BOJ) raising its interest rates and consequently strengthening the yen.
- A big part of the reason behind the market’s rally is a statement from the BOJ saying it would not raise rates as long as the market is unstable.
- After the statement from the BOJ, funds are back establishing new carry trades.
- Prudent investors should note that Bank of Japan governor Kazuo Ueda has now stated, “If we are able to confirm a rising certainty that the economy and prices will stay in line with forecasts, there’s no change to our stance that we’ll continue to adjust the degree of easing.” In plain English, this means the BOJ is likely to raise interest rates again. Such a raise may cause the carry trade to unwind again.
- 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 Amazon (AMZN), NVDA, Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (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.
Markets
Our very, very short-term early stock market indicator is ***. The reason is that the course of the market will depend on what Powell says. There is no way to know with certainty what Powell is going to say. 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 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 $2535, silver futures are at $29.43, and oil futures are at $74.36.
S&P 500 futures are trading at 5624 as of this writing. S&P 500 futures resistance levels are 5748 and 5926 : support levels are 5622, 5500, and 5400.
DJIA futures are up 165 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.
