By Nigam Arora
To gain an edge, this is what you need to know today.
Rate Decision Ahead
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 the stock market continues to reach new highs.
- The chart shows the stock market is levitating above support.
- RSI on the chart shows the stock market is overbought. Overbought markets are susceptible to a pullback.
- China’s internet regulator has ordered Chinese companies to stop buying Nvidia (NVDA) chips and cancel existing orders. According to China, the purpose of the ban is to reduce China’s reliance on the U.S.
- On September 15, we shared with you:
China is ratcheting up pressure on the U.S. using semiconductors as a pawn.
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China says Nvidia violated China’s anti-competition law.
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China has launched an anti-discrimination probe and also launched a dumping investigation into chips. This investigation is to look specifically at analog semiconductor companies. The most impacted companies are Texas Instruments (TXN), Analog Devices (ADI), and Microchip Technology (MCHP).
- After an initial drop, buying came into NVDA stock as the narrative spread that this was simply a negotiating technique and not a real issue. Now, China is raising the ante. Nvidia’s CEO Jensen Huang has responded by saying, “We can only be in service of a market if a country wants us to be.”
- In The Arora Report analysis, here is the main question: After the ban, will non-momo crowd investors still buy the narrative that this is a negotiating technique or will they believe that China is truly trying to reduce reliance on the U.S.? Momo gurus claim to know everything with certainty – expect them to come out in force saying that the ban is a negotiating tactic.
- The FOMC rate decision will be announced at 2pm ET followed by Fed Chair Powell’s press conference at 2:30pm ET.
- In The Arora Report analysis, here is the real question: Will the reaction to the Fed be a ‘melt up’ in the stock market or a ‘sell the news’ reaction? The momo crowd will most definitely buy stocks. Non-momo investors will be looking for clues of future interest rate policy before acting.
- The situation is further complicated because although the consensus is for a 25 bps cut, the Fed is under intense pressure from President Trump for a bigger cut. A 50 bps cut cannot be ruled out. A 50 bps cut will almost certainly bring extremely aggressive buying by the momo crowd. Non-momo crowd investors will be divided between two contrasting narratives:
- One narrative will be the Fed is now supportive of growth and it is time to buy stocks.
- The other narrative will be the Fed is giving into political pressure and that is a reason to sell stocks.
- Prudent investors should not get locked into any one opinion in any one narrative. Instead, consider objectively analyzing the new developments and segmented money flows. Based on objective analysis and the adaptive ZYX Asset Allocation Model, there may be a change in the Arora Protection Band. Adaptive means the model changes automatically with market conditions. Please click here to see how it is done. One of the secrets behind The Arora Report’s long term stellar track record is adaptiveness. In contrast, most models on Wall Street are static. They work for a while but stop working when conditions change.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
Housing Starts
Housing start data came weaker than expected. Here are the details:
- Housing starts came at 1.307M vs. 1.375M consensus.
- Building permits came at 1.312M vs. 1.370M consensus.
Europe
In Europe, inflation is matching the European Central Bank’s (ECB) target. Here is the latest data:
- Consumer Price Index (CPI) came at 0.1% month-over-month vs. 0.2% consensus.
- CPI came at 2.0% year-over-year vs. 2.1% consensus.
- Core CPI came at 0.3% month-over-month vs. 0.3% consensus.
- Core CPI came at 2.3% year-over-year vs. 2.3% consensus.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Microsoft (MSFT).
In the early trade, money flows are neutral in Apple (AAPL), Amazon (AMZN), and Alphabet (GOOG).
In the early trade, money flows are negative in Meta (META), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are negative 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. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary 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 3.42M barrels vs. a consensus of a draw of 1.6M 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
Bitcoin (BTC.USD) is seeing buying.
Markets
Interest rates and bonds are range bound.
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 6663 as of this writing. S&P 500 futures resistance levels are 6700 and 7000 : support levels are 6500, 6256, and 6131.
DJIA futures are up 52 points.
Gold futures are at $3706, silver futures are at $42.00, and oil futures are at $64.27.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora 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.
