By Nigam Arora & Dr. Natasha Arora

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

Island Reversal

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:

  • In yesterday’s Morning Capsule we shared with you, based on the premarket data, that an island reversal was potentially forming.
  • The chart shows that an island reversal has actually occurred.
  • The chart shows that island reversal led the market higher than where it was when Omicron news first broke.
    • Omicron has done a lot of damage.  In a sane world, not manipulated by the Fed and governments, the market should have been much lower.
    • On the flip side, the pattern since March of 2020 has been that the market runs higher on bad virus news.  This time the market has not been able to run higher.
    • The reason the market has not been able to run higher is that the Fed is in the process of changing its policy and Senator Manchin is blocking more borrowing.
  • Data from sewage analysis is used to determine virus spread in the population.  This data shows that there is massive underreporting of virus cases in official numbers.
  • A new study from South Africa shows that Omicron infection is 80% less likely to cause hospitalization.  Along with the good news, there is bad news — after hospital admission, the risk of severe disease with Omicron is the same as with other variants.
  • The sum total of the foregoing is that two dramatically different scenarios are developing.
    • The virus will burn out leading to a big rally in the stock market.
    • The change in the Fed policy and lack of more reckless borrowing may cause the market to significantly drop. 
    • Those who are interested in learning the next-level information about these scenarios, listen to the latest podcast that delves into these scenarios.
  • As we shared with you in yesterday’s  Afternoon Capsule, exuberance in the momo crowd is continuing. Having said that, keep in mind that we expect at least one day before the year-end when smart money sells.

GDP

Q3 GDP-third estimate came at 2.3% vs. 2.1% consensus.

Office Closed For Christmas

Our offices will close early today for Christmas and reopen on December 28 morning. The next capsule will be on December 28 morning.  There will be no capsules while the offices are closed.

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

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 down and bonds are ticking up.

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.

Gold futures are at $1793, silver futures are at $22.67, and oil futures are at $71.12.

S&P 500 futures resistance levels are 4713, 4770, and 4900: support levels are 4600, 4460, and 4400.

DJIA futures are down 50 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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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.