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:

  • The chart shows that a potential island reversal pattern is forming in the stock market based on the premarket data. Only after the close, it will be known if the pattern has formed.  An island reversal is a bullish pattern.
  • If the island does form, it will be especially bullish because the pattern would have formed just above the support zone.
  • RSI is turning positive giving a very short-term buy signal.
  • In yesterday’s Afternoon Capsule, we shared with you that the VUD indicator had turned solid green and the market was lifting on aggressive momo buying.
  • The momentum from yesterday is carrying over to this morning resulting in a gap up shown on the chart.
  • Adding to the bullishness are earnings from MU and NKE.
  • Semiconductors are the lifeblood of the modern economy.  Memory chips are the most prevalent semiconductors. MU is the largest American memory manufacturer.  MU reported earnings better than the whisper numbers and the consensus as well as gave good guidance.
  • NKE is not systematically important but it is in Dow Jones Industrial Average (DJIA).  NKE is moving up higher in the premarket on good earnings.
  • Momo is also excited about Biden’s speech tonight which will include the government distributing for free 500 million rapid virus tests.
  • The seasonality is positive as the traders are driving for a Santa Claus rally.
  • Keep in mind that liquidity will start thinning out beginning this afternoon as senior personnel goes on vacation.  The low liquidity market can be easily pushed around in either direction.
  • The foregoing does not mean that all of the negatives have gone away.  It is simply that the crowd is focused on the positives this morning.  There is still a potential of more negative news and smart money selling the rally.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks.  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 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.

Gold futures are at $1796, silver futures are at $22.65, and oil futures are at $70.25.

S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are up 280 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.