By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

Editors note: This article covers the month of October in general and was first published on October 5th before the market open.  For the latest information to understand what is going on in the stock market today, please read today’s Morning Capsule in one of the paid services. Free 30 day trials are available.

Bottom In October

Please click here for a chart of  S&P 500 ETF () which represents the benchmark stock market index S&P 500 ().

Note the following:

  • We have previously shared with you that stock market crashes tend to occur in October.
  • There is nothing simple about the stock market. Stock market bottoms also tend to form in October.
  • November and December tend to be seasonally strong months.
  • A common scenario is for the stock market to bottom in October and then make a strong run into the year-end.
  • The chart shows that the market hit the support zone.
  • Especially tech stocks are now oversold in the very, very short term. Oversold markets tend to bounce.
  • The foregoing means that investors should not get fixated only on the downside or only on the upside. Consider staying in the protection bands and buying per the direction in the Afternoon Capsules.
  • Investors should be aware that most of the trading these days is controlled by machines.  Machines are driven by algorithms.  When the market starts going up, machines start buying and continue to buy until buying is no longer profitable.  When the market starts going down machines start short selling and continue to short sell until it is no longer profitable.
  • The effect of the machines is that the moves are exaggerated in both directions.
  • Moves on the upside are especially exaggerated because the momo crowd starts buying aggressively when the market moves up.

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 🔒.

Gold

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

OPEC+ agreed to increase the production by 400K barrels per day.  Momo crowd is buying on the news because the belief is the demand is increasing faster and some analysts had expected the production increase to be higher. However, it appears that OPEC+ may not have had the capability to increase production further.

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒.

For longer-term, please see oil ratings.

Markets

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 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.

Gold futures are at $1758, silver futures are at $22.53, and oil futures are at $78.70.

S&P 500 futures resistance levels are 4318, 4400, and 4600: support levels are 4200, 4000, and 3950.

DJIA futures are up 148 points.

Protection Bands and What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or short-term bond funds 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.

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This post was just published on ZYX Buy Change Alert.

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Nigam Arora

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

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.