By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Hotter Wholesale Inflation
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 the stock market is levitating near the highs after the breakout.
- The chart shows that the stock market was running up before the release of the Producer Price Index (PPI), but there is slight selling after the release of PPI.
- In the early trade, there is buying in celebration of Republicans maintaining control of the House, but the euphoria is being tempered by economic data.
- RSI on the chart shows that the stock market is overbought and due for a pullback.
- The chart shows that the volume on this rally has been low. In The Arora Report analysis, the interpretation this time is different from the normal interpretation of volume. Normally, when a rally occurs on low volume, it indicates a lack of conviction. In this case, the interpretation is that the low volume on this rally is positive for the market because it means that many investors have not participated in this rally. Since investors who have not participated in this rally are likely to buy any pullback providing fuel, the interpretation here is that low volume is positive for the stock market.
- The Arora Report call remains to scale in on the dips.
- PPI data is another data point in a series of data that shows inflation is running hotter than expected. Here are the details:
- Headline PPI came at 0.2% vs. 0.2% consensus.
- Core PPI came at 0.3% vs. 0.3% consensus.
- Powell is speaking this afternoon. We will be carefully listening to see if Powell addresses hotter CPI and PPI data.
- The prevailing wisdom on Wall Street is that the Fed is going to ignore the data while claiming that it is data dependent and cut interest rates again in December.
- In The Arora Report analysis, if the data between now and the December FOMC meeting is stronger than expected, the Fed is going to have a very difficult time cutting interest rates again.
- The jobs picture remains strong. Initial jobless claims came at 217K vs. 220K consensus. Initial jobless claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions. Please click here to see how this is achieved. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.
- More implications of Trump’s election are beginning to surface across the globe. These implications will start impacting the stock market in due course. Please see below.
- In important news, Disney (DIS) stock is surging on guidance better than the consensus and whisper numbers.
- 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
Brazil
In a direct challenge to Trump, Brazil is pivoting to China to help with its development instead of seeking help from the U.S.
China To Counter Trump
China is getting retaliatory measures ready against the U.S. to counter Trump. China will reportedly impose its own counter tariffs against American companies.
In The Arora Report analysis, investors need to be extremely careful with companies such as Apple (AAPL) and Starbucks (SBUX) that do significant business with China. In The Arora Report analysis, Chinese authorities are likely to exempt Tesla (TSLA) because they see Tesla’s CEO Elon Musk as a conduit to influence Trump.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Nvidia (NVDA) and Amazon (AMZN).
In the early trade, money flows are neutral in AAPL.
In the early trade, money flows are negative in Alphabet (GOOG), Meta (META), Microsoft (MSFT), and TSLA.
In the early trade, money flows are positive 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.
Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.
Very Very Short-Term Indicator
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.
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 draw of 0.777M barrels vs. a consensus of a build of 1M 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) is trading above $90,000. There were several attempts to sell off bitcoin yesterday, but those attempts were met with aggressive buying.
Markets
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.
S&P 500 futures are trading at 6016 as of this writing. S&P 500 futures resistance levels are 6131 and 6256: support levels are 5926, 5748, and 5622.
DJIA futures are up 91 points.
Gold futures are at $2561, silver futures are at $30.22, and oil futures are at $69.15.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The protection band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash, Treasury bills, short term fixed income, 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.
A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.
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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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 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.
