POSITIVE STOCK MARKET SEASONALITY AHEAD AFTER LONGEST LOSING STREAK SINCE PANDEMIC CRASH, AI EXCITEMENT

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By Nigam Arora & Dr. Natasha Arora

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

Positive Treasury News

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 is a monthly chart to give you a long term perspective.
  • The chart shows that the stock market has just finished a three consecutive month losing streak.
  • The chart shows this is the longest losing streak since the pandemic.
  • As the stock market enters November, it is rare to have four consecutive losing months.
  • The chart shows that the last time a four consecutive month drop occurred, it was in 2011.  Long time members of The Arora Report may recall that in 2011, The Arora Report was one of the rare services that produced large positive returns.  Most services and banks lost money.  
  • On the positive side, there have only been five prior times when the stock market went down in August, September, and October.  These five times were in 2016, 1990, 1977, 1957, and 1952.  In each of these five times, the stock market went up in November.
  • The chart shows RSI divergence.  From a longer term perspective, this is a technical negative.
  • Yesterday, we wrote:

In The Arora Report analysis, the Treasury issuance statement is of utmost importance to stock investors.  If yields rise further on long term bonds, this will be a negative for the stock market. On the other hand, if yields fall, it will be a positive for the stock market.

  • We also previously wrote:

In The Arora Report analysis, Treasury issuance announcement is more important for investors than the Fed decision.

  • Here are the details of the Treasury announcement:
    • “The U.S. Department of the Treasury is offering $112 billion of Treasury securities to refund approximately $102.2 billion of privately-held Treasury notes maturing on November 15, 2023. This issuance will raise new cash from private investors of approximately $9.8 billion. The securities are: A 3-year note in the amount of $48 billion, maturing November 15, 2026; A 10-year note in the amount of $40 billion, maturing November 15, 2033; and A 30-year bond in the amount of $24 billion, maturing November 15, 2053.”
  • In The Arora Report analysis, the details of the announcement are better than expectations.  This is bringing in buyers in the stock market in the early trade.  
  • Today is Fed day. The Fed will announce its decision at 2pm ET, followed by Powell’s press conference at 2:30pm ET.
  • ADP Employment Change came at 113K vs. 100K consensus.  This indicates that the jobs picture continues to stay strong.
  • Prudent investors should take note of the foolishness that the momo crowd often exhibits.  WeWork (WE), once valued over $47B due to excitement by venture capitalists and the momo crowd, is filing for bankruptcy.  WE stock once valued over $500 has fallen to $1.37 as of this writing in the premarket.  
  • In yesterday’s Afternoon Capsule, we wrote:

AMD reports earnings after hours today.  AMD earnings are particularly important as they can impact market sentiment due to AMD’s popularity among retail investors.

  • AMD reported earnings worse than expected, but investors are buying the stock anyway on excitement about its AI chip.
  • Starting today, Microsoft (MSFT) is selling its AI Copilot to enterprises for $30 per month.  The expectations are that 7M people will be using Copilot by the end of 2024.  Considering that there are 300M paid Microsoft users, investors are excited about the potential of AI Copilot.
  • This is the first day of the month.  On the first two days of the month, blind money flows into the stock market.  Blind money is the money that flows into the stock market without any analysis and irrespective of market conditions.  This morning, Wall Street is front running blind money and buying stocks to sell to blind money at a profit later in the day.
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.   Please scroll down to see the protection band.
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Bank Of Japan

We have been sharing with you the importance of Bank of Japan (BOJ) actions to the U.S. stock market.  BOJ unexpectedly stepped into the bond market to intervene against speculators.  The 10-year JGB touched 0.97%.  This is a new high in a decade. 

Magnificent Seven Money Flows

In the early trade, money flows are positive in Alphabet (GOOG), Amazon (AMZN), Meta (META), Tesla (TSLA), Microsoft, and Apple (AAPL).

In the early trade, money flows are negative in Nvidia (NVDA).

In the early trade, money flows are mixed 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.

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

API crude inventories came at a build of 1.347M barrels vs. a consensus of a draw of 1.601M barrels.

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) continues to be range bound.

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 and bonds are range bound.

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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 $1995, silver futures are at $22.88, and oil futures are at $83.09.

S&P 500 futures are trading at 4213 as of this writing.  S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4200, 4000, and 3950.

DJIA futures are up 44 points.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash or Treasury bills 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.

See also  KEY TO THE MARKET IS BIDEN’S RESPONSE TO KILLING OF U.S. SOLDIERS – OPTIMISM OVER TECH EARNINGS

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

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.

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