By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Powell Speaks The Truth
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:
- It is worth a reminder that The Arora Report is politically agnostic. Our sole job is to help our members extract the maximum amount of money out of the markets with the least possible risk.
- The price action on the chart shows that the rip roaring Trump rally is taking a breather.
- The chart shows that the stock market is still above the breakout line.
- RSI on the chart shows that the stock market has pulled back, reflecting a loss of momentum. The stock market is still overbought.
- The chart shows that the volume remains low. This indicates that institutional investors are not rushing to buy stocks.
- Yesterday, Powell spoke that truth – the market did not like it. Powell said, “The economy is not sending any signals that we need to be in a hurry to lower rates.” Powell elaborated, “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”
- Powell’s remarks brought some selling into stocks and bonds.
- This morning, in the early trade, selling continues.
- The reason for some selling is that the prevailing wisdom on Wall Street has been that another rate cut in December was a sure thing. The Arora Report has been questioning Wall Street’s wisdom and sharing with you that the data does not support another rate cut.
- Some conservative commentators are upset believing that the reason Powell started rate cuts with a 50 bps cut was to help Kamala Harris get elected. Now that Trump has been elected, Powell is in no hurry to cut rates.
- In The Arora Report analysis, even though the data does not support a rate cut in December, Powell is going to feel pressure from Trump and Republicans to cut rates. There is also a significant amount of data between now and the December Fed meeting.
- In The Arora Report analysis, based on a 360 degree view, including the political pressure and the pressure from Wall Street to cut rates, the probability of a rate cut in December is now about 60%.
- There is consternation about several Trump picks. Impacting the market most are Trump’s picks of RKF Jr, Matt Gaetz, and Pete Hegseth. These picks are bringing selling in vaccine makers such as Moderna (MRNA), BioNTech (BNTX), Novavax (NVAX), Merck (MRK), and Pfizer (PFE). There is also selling in other healthcare stocks, including weight loss drug companies Eli Lilly (LLY) and NovoNordisk (NVO), and packaged food stocks such as The Kraft Heinz Company (KHC). There is also selling in defense stocks such as Boeing (BA), Lockheed Martin (LMT), Northrop Grumman (NOC), and RTX (RTX). There is also selling in big tech stocks.
- The latest economic data is strong. The U.S. economy is about 70% consumer based. For this reason, prudent investors pay attention to retail sales. Here are the details of the just released data:
- Retail sales came at 0.4% vs. 0.3% consensus.
- Retail sales ex-auto came at 0.1% vs. 0.2% consensus.
- There are hundreds of indicators. At The Arora Report, the system has been refined through decades of research to share with you only those indicators that matter. Normally, we do not mention the NY Fed Empire State Manufacturing Index. Today, we are mentioning it due to its exceptional strength. The index came at 31.2 vs. 3.3 consensus. This indicates that manufacturing in the New York area has picked up steam. If similar strength is happening in the rest of the country, that would argue against further cutting interest rates. The problem for investors is that stock valuations are so high that to sustain them, rate cuts are needed.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Tesla (TSLA).
In the early trade, money flows are negative in Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT), Meta (META), and Nvidia (NVDA).
In the early trade, money flows are negative 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 *** stocks 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
The momo crowd is *** oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Even the slightest dips in bitcoin (BTC.USD) are being bought.
Markets
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.
S&P 500 futures are trading at 5943 as of this writing. S&P 500 futures resistance levels are 6017, 6131, and 6256: support levels are 5926, 5748, and 5622.
DJIA futures are down 185 points.
Gold futures are at $2571, silver futures are at $30.74, and oil futures are at $68.04.
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.
