By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Know The Reason Behind The Indicators
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 a bullish pattern that has not been seen since March 2003.
- The chart shows the 100 day low.
- The chart shows seven consecutive days up. The bullish pattern is seven consecutive up days after a 100 day low.
- March 2003 marked the end of a bear market. History does not exactly repeat itself, but it is worth paying attention to.
- The difference from 2003 is that this time the pattern in the stock market resulted from a massive short squeeze in bonds. Patterns are more reliable when they are not based on market mechanics. Thank you for your requests for a podcast on this epic move in the stock market and the underlying market mechanics. We are working on a podcast that will be available in Arora Ambassador Club.
- RSI on the chart shows that the market is overbought. Overbought markets tend to be vulnerable to the downside.
- Powell speaks today. Powell is expected to try to cool down the rampant speculation in the stock market of interest rate cuts coming soon.
- Expect momo gurus to use two narratives to persuade their followers to continue to aggressively buy stocks: fight the Fed and do not believe Powell.
- Zweig Breadth Thrust Indicator completed last Friday. It is gaining popularity this week as a reason to buy stocks. This indicator has triggered 18 times since 1945 and has been correct 100% of the time. It predicts a return of about 25% over the next 11 months.
- In The Arora Report analysis, investors need to look not only at the breadth and patterns but the reasons behind the patterns. Here, the reason was a massive short squeeze in the bond market. Short squeezes tend to end. As we shared with you yesterday:
In The Arora Report analysis, the first leg of the short squeeze in bonds is now over.
- Yields had risen because of the massive upcoming supply of Treasuries due to excessive government spending. This reason is still there. The Arora Report was one of the first to alert investors of the massive upcoming Treasury borrowing. Subsequently, we shared with you:
From October to December, the Treasury will borrow $776B. In The Arora Report analysis, this amount is $76B less than the consensus.
- The Treasury is still going to borrow a massive amount. We also previously wrote:
That is $1.592T of borrowing over six months.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
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.
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.
API crude inventories came at a build of 11.9M barrels vs. a consensus of a draw of 0.3M 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 (BTC.USD) is range bound. Bitcoin bulls are hoping the whales will drive it over $40,000 this weekend.
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 $1970, silver futures are at $22.73, and oil futures are at $76.86.
S&P 500 futures are trading at 4398 as of this writing. S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4318, 4200, and 4000.
DJIA futures are up 48 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.
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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