Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report.
Please scroll down for the section ‘Protection Bands and What To Do Now.’
PERSONAL INCOME JUMPS 10% IN ONE MONTH, 21% DROP IN MOMO’S PARENTS’ RETIREMENT
To gain an edge, this is what you need to know today.
21% Drop In Retirement Funds
Please click here for a chart of ARK Innovations ETF (ARKK).
Note the following:
- One pearl of wisdom we have observed among the momo crowd is that they understand the way they invest and trade is not suitable for the retirement funds of their elderly parents.
- In their quest to find a suitable investment for their elderly parents, the momo crowd has zeroed in on ETF ARKK.
- The momo has determined that ARKK is a safe investment for the following reasons: it is diversified with 35 to 55 holdings, it is a large fund with $17 billion of assets, it is actively managed and they worship the fund manager.
- ARKK has been one of the fastest growing ETFs.
- The chart shows that ARKK dropped 21% in six days – so much for safety.
- To be fair, the fund is still above where it started the year.
- The chart shows volume on the drop has been heavy indicating that some holders are selling.
- The foregoing illustrates the pearls of following the momo crowd.
- Select momentum strategies are valid strategies when used in a portfolio that is diversified by strategies. You have numerous examples of the success of such select strategies from our calls.
- Even when select momentum strategies are used with correct risk controls and expert guidance, investors need to be prepared for high volatility and losses in certain periods.
- In the long run, blindly following momentum is a recipe for disaster.
10% Rise In Personal Income
This morning the government reported that Personal Income in January rose by 10.0% vs. 9.5% consensus. Analysts already knew that the income would rise due to free money and government programs.
Pause for a second and think about the average income of a large population increasing by 10% in one month due to government programs. What do our leaders want to do next? They want to borrow $1.9 trillion and give away more free money.
Personal Spending came at 2.4% vs. 2.6% consensus. This indicates there is room for more money to come into the stock market.
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. The thinking goes, “Who needs the safety of gold when there is such a great opportunity to buy this dip in stocks?” 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 positive but can quickly turn🔒. 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 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 $1759, silver futures are at $26.75, and oil futures are $62.15.
S&P 500 futures resistance levels are 3860, 3920 and 4000: support levels are 3800, 3630 and 3600.
DJIA futures are down 27 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, on dips, 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, 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.
INVESTORS TAKE NOTICE – ‘GO BIG’ MISSING THE BIG PICTURE
To gain an edge, this is what you need to know today.
Missing The Big Picture
Please click here for a chart of U. S. GDP.
Note the following:
- This morning Q4 GDP Second Estimate came at 4.1% vs. 4.1% consensus.
- The chart is a long term chart going back to the year 2000 to give investors a big picture perspective.
- The chart shows that GDP has more than doubled during the 20 year period.
- The chart shows that after the sharp coronavirus dip, GDP is approaching the pre-coronavirus level and the economy has still not fully reopened.
- As the economy reopens, GDP will likely go above pre-pandemic levels even without the massive borrowing that Yellen and others are advocating. Yellen’s call is to ‘go big.’
- The $1.9 trillion stimulus package now being considered has only a small portion that is intended for helping those who need help. The rest of it is just a free money giveaway and pork.
- The momo crowd is excited because as much as $200 billion will directly flow into the stock market from the stimulus package.
- Nobody is talking about the long term negative impact of borrowing such a huge amount, giving free money to those who do not need it, giving free money to mismanaged government entities, and through a variety of measures to the rich.
Jobless Claims
Initial Jobless Claims came at 730K vs. 820K consensus. This indicates the economy is picking up steam. This is a leading indicator and carries heavy weight in our models.
Durable Orders
Durable Orders Extransporation came at 1.4% vs. 0.6% consensus.
Headline Durable Orders came at 3.4% vs. 1.2% consensus.
These are very strong numbers.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 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 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 $1782, silver futures are at $27.96, and oil futures are $63.23.
S&P 500 futures resistance levels are 3920, 4000 and 4200: support levels are 3860, 3800 and 3630.
DJIA futures are down 17 points.
CONSTERNATION OVER HUNTED STOPS, POWELL GETS ANOTHER SHOT
To gain an edge, this is what you need to know today.
Consternation
Please click here for a chart of Nasdaq Next Gen 100 ETF (QQQJ).
Note the following:
- QQQJ is a proxy for aggressive momo stocks.
- Those investors who have positions based on momo strategy may want to read again the original posts for those stocks and pay special attention to the risks.
- The chart shows that the trendline was penetrated and then there was a bounce above the trendline.
- When the trendline was penetrated, stops were hunted. After most of the stops were taken out, the market bounced on Powell putting more air into the bubble.
- Stops getting hit and then momo stocks bouncing used to be a common occurrence and often the bread and butter of professional traders to take advantage of those with less knowledge.
- Investors need to understand that what has happened since March of 2020 is not normal. Many newer investors are euphoric over how much money they have made without understanding that they took extreme risks. History shows that such investors end up losing their shirts in subsequent years.
- Yesterday was a glimpse of some normalcy potentially returning to the markets.
- Prudent investors need to watch for either a decisive break below the trendline shown on the chart or a decisive bounce. Right now the momo stocks are positioned in no-man’s-land.
- The chart shows that RSI is following the same pattern that it followed on previous bounces, but it is too early to tell.
- Powell will get another shot in front of Congress today to inflate the bubble.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 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
API data showed a build of 1.026M barrels vs. a consensus of a draw of 5.19M barrels. This data is bearish.
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 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 $1787, silver futures are at $27.57, and oil futures are $61.88.
S&P 500 futures resistance levels are 3920, 4000 and 4200: support levels are 3860, 3800 and 3630.
DJIA futures are down75 points.
WILL POWELL PUT MORE AIR IN THE STOCK MARKET BUBBLE TODAY?
To gain an edge, this is what you need to know today.
Powell Testimony
Please click here for a chart of Nasdaq Next Gen 100 ETF (QQQJ)
Note the following:
- Powell will testify in front of Congress today at 10:00 am ET and again at 10:00 am tomorrow.
- The technical condition of the stock market is such that the market needs Powell to put more air in the stock market bubble taking advantage of his testimony.
- The prevailing wisdom is that Powell will oblige.
- There is some nervousness about Powell’s remarks and especially about the questions he may be asked regarding rising interest rates and higher inflation.
- Sooner or later the Fed is going to have to stop inflating the bubble. Investors need to watch carefully.
- QQQJ is a proxy for aggressive momo stocks.
- The chart shows that in spite of the selloff, the trendline shown on the chart is still holding.
- The chart shows that the last two dips to the trendline resulted in bounces and the market going higher due to news about more money printing and more borrowing.
- The chart shows that RSI is nearing an oversold level.
- The chart shows that the market bounced the last two times RSI reached this level.
- Now it is all in the hands of Powell.
- Investors need to be careful. There are anecdotal reports of some among the momo crowd suffering huge losses yesterday.
February 11 Warning
An important post on February 11th had the headline TAKE AT LEAST PARTIAL PROFITS IN THE PORTFOLIO THAT SURROUNDS THE CORE MODEL PORTFOLIO. The post stated,
It is imperative to take more partial profits on the stocks that are based on the momo strategy.
Lucid Motors
The Morning Capsule is not about an individual company but about the big picture. The case of Lucid Motors and the unfortunate losses some investors are suffering is simply to illustrate the point.
The momo crowd ran up the SPAC of CCIV to about $60 on rumors of a potential merger with Lucid Motors. Lucid Motors is headed by the former chief engineer of Model S at Tesla (TSLA). Investors were excited about the potential of TSLA like returns. They were buying, fully knowing that the promotors were taking major fees out and literally had a large amount of stock at a net-zero cost to them. The news is that the promotors sold the stock to smart money at $15 at a time momo and pop were buying at about $60. The stock has now fallen to $38.50 as of this writing. Many investors were so excited that they put all of their money into this stock.
Investors need to be careful. It is worth revisiting your Getting A Running Start Guide and Trade Management Guidelines.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 stock 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 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 $1808, silver futures are at $27.94, and oil futures are $61.90.
S&P 500 futures resistance levels are 3860, 3920 and 4000: support levels are 3800, 3630 and 3600.
DJIA futures are down 18 points.
RISING MARGIN DEBT AT A TIME OF RISING INTEREST RATES CAN MAKE STOCK MARKET VULNERABLE
To gain an edge, this is what you need to know today.
Rising Margin Debt
Please click here for a chart showing the progression of margin debt.
Note the following:
- The table shows that margin debt has been rising.
- Anecdotal evidence is that there is a significant increase in margin debt in momo stocks. As momo stocks have gone up, the momo crowd has had more margin available to them. Momo has increased its bets using the higher available margin.
- Margin is a two-edged sword. It works great as long as momo stocks keep going higher. However, if momo stocks start dipping, many among the momo crowd will get margin calls. Anecdotal evidence is that many among the momo crowd are fully invested and the only way for them to meet margin calls is to sell stocks.
- The foregoing scenario is important for prudent investors to consider especially at a time when interest rates are rising and sentiment is very positive.
- To illustrate the situation, we have been using the analogy of a boat where everybody is on one side. Nothing bad happens as long as the waters are calm. However, the boat can tip over if a wave comes from the wrong direction. Increased margin debt is like adding more weight to the side of the boat where everybody is gathered.
Bitcoin
After hitting $57,000 over the weekend, bitcoin is pulling back to the $52,000 range. There is a tug-of-war. Bulls believe it is going to $100,000 due to excessive money printing and borrowing. Bears believe that the speculation is way overdone.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 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 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 $1798, silver futures are at $27.51, and oil futures are $60.13.
S&P 500 futures resistance levels are 3920, 4000 and 4200: support levels are 3860, 3800 and 3630.
DJIA futures are down 166 points.
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