By Nigam Arora
To gain an edge, this is what you need to know today.
Key Data Ahead
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows that QQQ did not reach the low band of zone 1 (resistance) before pulling back.
- The chart shows that this morning QQQ is rallying. Buying in QQQ this morning is almost exclusively coming from the momo crowd. The momo crowd is repeating its pattern of buying before key events.
- Two key events are ahead:
- PCE, the Fed’s favorite inflation gauge, will be released tomorrow at 8:30am ET. In addition, personal income and spending, GDP, and durable orders will also be released.
- Nvidia earnings will be released after the regular session close tomorrow.
- Prudent investors should be highly cognizant of the sharp contrast between the momo crowd and smart money. The momo crowd almost always aggressively buys before key events. A key event poses risk to the downside and reward to the upside. Since the momo crowd does not take risk into account, their logic of buying before the key event is that there may be a potential reward. On the other hand, smart money focuses on both risk and reward. For this reason, smart money typically does not buy before a key event.
- We previously wrote about the U.S. Treasury bond buyback program. Legendary investor Stanley Druckenmiller is publicly criticizing Treasury Secretary Bessent’s expansion of Treasury buybacks of long bonds. In The Arora Report analysis, we agree with Druckenmiller and prudent investors should pay attention to the following:
- The Treasury appears to be moving beyond its traditional role of maintaining orderly markets.
- There is no evidence of Treasury market stress that would normally justify this type of intervention.
- Higher long term yields are sending an important message about persistent inflation, very large federal deficits, rapidly rising federal debt, and enormous government interest expense.
- The bond market is one of the few remaining forces capable of imposing discipline on fiscal policy.
- There is also a credibility risk. If the Treasury begins buying bonds because yields are considered too high, investors may reasonably ask where the intervention ends if yields continue rising. That could ultimately require increasingly large purchases and undermine confidence in Treasury debt management.
- Bond buybacks cannot solve a fiscal problem. Sustainable downward pressure on long term interest rates ultimately requires lower deficits and greater confidence in the long term trajectory of U.S. government finances.
- Consumer confidence will be released at 10am ET today and may be market moving.
- 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.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Alphabet (GOOG), Meta (META), and Tesla (TSLA).
In the early trade, money flows are neutral in Apple (AAPL).
In the early trade, money flows are negative in Microsoft (MSFT).
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. 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
We previously shared with you that the gold rally was triggered by aggressive buying by Chinese investors. As gold prices have rallied, Chinese buying is petering out. In The Arora Report analysis, now there are first signs that gold may pull back in the short term.
The momo crowd is *** gold in the early trade. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is *** gold 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) briefly rallied above $80K before pulling back. The rally continues to be fueled by a short squeeze and retail investors buying into the narrative of dollar debasement.
Markets
Interest rates are ticking down, and bonds are ticking up.
The dollar is range bound.
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 7696 as of this writing. S&P 500 futures resistance levels are 7700, 7900, and 8000 : support levels are 7318, 7194, and 7032.
DJIA futures are up 209 points.
Gold futures are at $4661, silver futures are at $68.10, and oil futures are at $82.34.
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.
