By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Interest Rates Rise
Please click here for a chart of Nvidia stock (NVDA).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of NVDA stock is being used to illustrate the point.
- The chart shows NVDA stock attempted to break out yesterday after a great speech from Nvidia CEO Jensen Huang.
- The chart shows NVDA stock fell below the micro resistance zone and is in the support zone as of this writing in the premarket. Previously, the micro resistance zone was a micro support zone.
- The chart shows the breakout of NVDA stock failed.
- The chart shows the pullback yesterday was not on low volume. This indicates conviction.
- The pattern on the NVDA chart is known as an outside day. This is a negative pattern.
- The momo crowd was piling into NVDA stock going into Huang’s speech and in the early trade yesterday. The momo crowd aggressively bought out of money call options that are likely to expire worthless.
- The momo crowd is suffering major losses because they took on a very large quantity of call options and fully margined large stock positions. This underscores the importance of position sizing. The Arora Report is one of very few resources that has perfected the art of position sizing.
- The real reason behind NVDA’s breakout falling is that the stock is in the fifth stage of the five stages of a long trade. When a stock is in the fifth stage, there are three possible futures:
- The stock stays in stage five for a long time.
- The stock starts the five stages of a short trade.
- The stock breaks out and starts another cycle of the five stages to the upside.
- The Arora Report’s call is to partially hedge NVDA and other semiconductor stocks, including semiconductor ETF SMH.
- Bond yields have been rising in response to strong economic data:
- ADP employment change came at 122K vs. 131K consensus.
- Initial jobless claims came at 201K vs. 218K consensus.
- JOLTS job openings came at 8.098M vs. 7.839M prior.
- ISM Services came at 54.1% vs. 53% consensus.
- Rising yields are beginning to put pressure on stocks.
- 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 Microsoft (MSFT) and NVDA.
In the early trade, money flows are neutral in Meta (META).
In the early trade, money flows are negative in Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), and Tesla (TSLA).
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.
Very Very Short-Term Indicator
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.
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
API crude inventories came at a draw of 4.022M barrels vs. a consensus of a draw of 0.25M barrels.
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) has seen selling along with other speculative and junk stocks.
Markets
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.
S&P 500 futures are trading at 5949 as of this writing. S&P 500 futures resistance levels are 6017, 6131, and 6256 : support levels are 5926, 5748, and 5622.
DJIA futures are down 17 points.
Gold futures are at $2671, silver futures are at $30.70, and oil futures are at $74.57.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The protection band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash, Treasury bills, short term fixed income, 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.
