By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Reaction Of Overbought Market
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 was near the low band of support zone 3.
- The chart shows Arora buy signals near the April lows.
- The chart shows the stock market ran up to the top band of resistance zone 2.
- The chart shows the Arora signal to take partial profits.
- The chart shows that the stock market has pulled back from the top band of resistance zone 2 as of this writing in the premarket.
- The chart shows low volume yesterday, which indicates there is not a lot of conviction in the pullback.
- As a member of The Arora Report, you already knew in advance that a pullback was likely. On Friday, when RSI reached 100, we shared with you:
RSI on the chart indicates that the market is extremely overbought. Overbought markets tend to pullback.
- The market became extremely overbought due to the recent uber bullishness. Yesterday, we wrote:
History tells us that the uber bullishness of the last nine days does not always work out well. For this reason, The Arora Report call is to take more partial profits on tactical positions started near the April lows.
- The chart shows that even though RSI has pulled back, the stock market is still overbought.
- Prudent investors should note that Arora charts use optimized RSI settings for the current market. The traditional settings that most investors use no longer work well.
- The trade imbalance came at -$140.5B vs. -$127.5B consensus. In The Arora Report analysis, the worsening trade imbalance is due to the rush to import ahead of tariffs.
- Prudent investors should pay attention to what is happening to currencies in Asia. The dollar has been the anchor for Asian currencies. Until yesterday, the expectation was that the dollar would continue to be the anchor of Asian currencies. In a surprise move today, China moved to make the yuan the anchor for Asian currencies. In The Arora Report analysis, if China is successful, this will be the start of a negative long term development for the U.S. As a practical action item, this is where Corporate Bundle 1 shines as it diversifies across the globe. Please see the “Accelerating Wealth Generation” section in the Trade Management Guidelines.
- In a shock from Germany, Friedrich Merz did not get the first parliamentary vote to become chancellor. This development is adding to negativity in the stock market this morning as it indicates less stability in Germany. In post World War history, Merz is the first would-be-chancellor to not win the first parliamentary vote.
- The FOMC meeting starts today. The Fed will announce its interest rate decision tomorrow at 2pm ET, followed by a press conference from Fed Chair Powell at 2:30pm ET.
- 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
In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
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
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 selling.
Markets
Interest rates and bonds are range bound.
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 5625 as of this writing. S&P 500 futures resistance levels are 5622, 5748, and 5926 : support levels are 5500, 5400, and 5256.
DJIA futures are down 293 points.
Gold futures are at $3400, silver futures are at $33.26, and oil futures are at $58.68.
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.
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.
