By Nigam Arora & Dr. Natasha Arora

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

The Plan

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:

  • Start with Arora’s Second Law of Investing and Trading: Nobody knows with certainty what is going to happen next in the markets.
  • Follow up with Arora’s Third Law: Making investing and trading decisions based on probabilities is the only realistic and profitable approach.
  • There is a 40% probability of the stock market breaking below the support zone shown on the chart.
  • There is a 30% probability of the stock market breaking above the resistance zone shown on the chart.
  • There is a 30% probability of the stock market staying range-bound.
  • Here are the important points about seasonality.
    • Stock market crashes tend to occur in the month of October.
    • In October 1987, the stock market lost 22% in one day.
    • The great stock market crash of 1929 started on October 24th.
    • When a crash does not occur, in the past 10 years, October has been the fourth-best month of the year.
    • Since 1950, October has ranked seventh-best month for the stock market in a post-election year.
  • The earnings season is ahead.
    • Expectations are very high.
    • Expectations for future earnings projections from companies are even higher.
    • With rising costs, companies may have difficulty meeting the expectations.
  • There is drama in Washington on a number of fronts that may move the markets.
  • Based on the data, the Fed should start tapering. However, Powell is up for renomination and he wants to keep his job.  To keep his job he has to appease Biden.
  • There is considerable uncertainty about China.  Chinese policies may have a significant impact on the stock market.
  • Oil prices have the potential to fluctuate wildly and may have a significant impact on the stock market.
  • There is a significant amount of economic data to be released this month and will impact the market.
  • The momo crowd is conditioned to keep on buying as their belief that ‘stonks always go up’ has not changed.
  • Here is the plan.
    • Carefully watch the price action relative to the support and resistance zones shown on the chart.
    • Follow the protection bands shown below in the ‘Protection Bands and What To Do Now?’  section.
    • Within the protection bands, pay attention to ‘Buy Zones And Buy Now Ratings’section in the Afternoon Capsule.
    • For most investors, being conservative and not aggressive at this time has merit. 
    • If you are conservative, give priority to protecting your money over making money.  

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

There are all kinds of rumors about OPEC+ regarding oil production.

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 $1754, silver futures are at $22.46, and oil futures are at $77.10.

S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

DJIA futures are down 17 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.