By Nigam Arora
To gain an edge, this is what you need to know today.
Oil Rising
Please click here for a chart of oil ETF (USO).
Note the following:
- The chart shows oil is rising this morning.
- The chart shows oil has risen significantly from the low in early July when optimism about the Iran deal prevailed.
- Oil is important because it contributes to inflation and inflation has proven to be sticky.
- The move up in oil is the result of the U.S. striking two rocket launchers on Larak Island. The U.S. said that Iran was getting ready to launch rockets with sea mines into the Strait of Hormuz. Iran retaliated by attacking U.S. bases in Jordan and U.A.E.
- Reverberations from Fed Chair Warsh’s hawkish speech at Jackson Hole are permeating through markets across the globe.
- Rising oil and reverberations from Warsh’s speech are bringing selling into the stock market in the early trade.
- The next Fed meeting is on September 15 – 16. The Fed meeting will be the true test of Warsh’s hawkishness. In The Arora Report analysis, prudent investors should be aware of two possibilities:
- Warsh is being hawkish to gain credibility with other FOMC members but in reality does not want to raise interest rates.
- The Fed actually raises interest rates. However, it will be very unusual for the Fed to raise interest rates ahead of the midterm election. Typically, but not always, the Fed restrains from changes in monetary policy ahead of an election to avoid any implications of the Fed being political.
- In The Arora Report analysis, at this time, there is no clarity as to how the stock market will react to what the Fed does. Investors should start with Arora’s Second Law of Investing and Trading, which states, “Nobody knows with certainty what is going to happen next in the markets.” Prudent investors should keep three scenarios front and center:
- The Fed does not raise rates, and the stock market stages a strong relief rally.
- The Fed raises rates, and the stock market gets spooked and suffers a significant drop.
- The Fed raises rates. This establishes the Fed’s credibility, and as a result, yields on long bonds fall. Falling yields cause the stock market to rally.
- Weak seasonality is ahead. September is often the worst month of the year for the stock market, and October is often very volatile.
- The best practical way for investors to navigate the uncertainty is to follow the Arora Protection Band.
- 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 Meta (META) and Nvidia (NVDA).
In the early trade, money flows are neutral in Apple (AAPL).
In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT), 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
Gold continues to see selling for the following reasons:
- As we shared with you, the initial buying in gold from the lows was triggered by buying from investors in China in response to government crackdown on moving money abroad.
- Near the recent top, the momo crowd aggressively bought call options on gold. Now, the momo crowd is sitting on losses.
- Warsh’s hawkishness is negatively impacting gold.
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 *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is buying oil in the early trade. Smart money is inactive in the early trade.
For longer-term, please see oil ratings.
Bitcoin
The first leg of short squeeze in bitcoin (BTC.USD) is over. As a result, the buying pressure is gone. There is some selling coming in due to Warsh’s hawkish statement.
Markets
Interest rates are ticking up, and bonds are ticking down.
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.
S&P 500 futures are trading at 7694 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 down 196 points.
Gold futures are at $4455, silver futures are at $67.28, and oil futures are at $85.97.
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.
