By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Critical Powell Speech Ahead
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 when the rotation started in SPY from tech stocks to other groups such as healthcare, small caps, and interest rate sensitive stocks in advance of Fed Chair Powell’s Jackson Hole speech.
- Since tech stocks carry such a heavy weight in the S&P 500, the chart shows that although rotation stopped the stock market from going higher, the pullback is shallow.
- Powell will be speaking at Jackson Hole at 10am ET.
- If Powell is dovish and gives into President Trump’s demands, stock market bulls will try to push the market to new highs.
- If Powell is hawkish, expect a battle between the bulls and bears to ensue. On the bulls’ side, momo gurus will attempt to drive the stock market higher by telling their followers that Powell does not matter because his tenure is short term and President Trump has several levers to control the Fed. Deflated bears will contend that Powell is right.
- In The Arora Report analysis, the most prudent course for Powell will be to simply say that the Fed will be data dependent. There is significant data ahead before the next Fed meeting.
- Even though not many are talking about it, in The Arora Report analysis, Powell may lay out a new monetary framework. The framework that the Fed is operating under was laid out in 2020. The record shows that the framework has not worked well and is obsolete for the current state of the economy. The present framework has its roots in 2012 when the Fed established its 2% inflation target. In 2020, the Fed made a shift to allow inflation to run higher than the 2% target to compensate for the periods when inflation was below 2%. The Fed may also back off from present employment goals. The Fed may consider focusing not only on unemployment being too high but also unemployment being too low. Low unemployment is a driver of inflation.
- It appears President Trump will be speaking today at noon. As of this writing, the specific topic is not confirmed.
- Yesterday, we shared with you:
Nvidia (NVDA) has a new China problem. One of the reasons NVDA stock went up is that Nvidia gained approval for a China-specific H20 AI chip. Now, the Chinese government is instructing large users such as Alibaba (BABA) to cut orders for H20. In The Arora Report analysis, the Chinese appear to be insulted by Howard Lutnick’s comment. Lutnick said, “We don’t sell them our best stuff, not our second-best stuff, not even our third-best.” He also stated, “You want to sell the Chinese enough that their developers get addicted to the American technology stack, that’s the thinking.”
- Nvidia (NVDA) has hit a wall with its H20 chips for China. Nvidia has halted orders for components of H20 AI chips from its suppliers.
- Adding more cold water to the AI trade is a report from MIT. The report concluded only 5% of AI pilot programs are achieving their goals. Selling was seen in several AI stocks on the MIT report.
- To us at The Arora Report, the MIT report is not a surprise. This is exactly what the change curve predicts that Nigam Arora developed 25 years ago. The change curve is also described in Nigam’s book Theory ZYX of Successful Change Management: A Definitive Guide to Reach the Next Level. Thank you for all of your emails wanting a podcast on the change curve. We are starting work on the podcast.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
Germany
The economy in Germany shrunk by 0.3% quarter-over-quarter vs. consensus of a drop of 0.1%. In the face of weak economic data, the sentiment in Germany remains positive.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), and Tesla (TSLA).
In the early trade, money flows are neutral in Meta (META) and Microsoft (MSFT).
In the early trade, money flows are negative in Nvidia (NVDA).
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. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary 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
Bitcoin (BTC.USD) continues to see selling.
Markets
Interest rates are ticking down and bonds are ticking up.
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 6401 as of this writing. S&P 500 futures resistance levels are 6500, 6700, and 7000: support levels are 6256, 6131, and 6017.
DJIA futures are up 151 points.
Gold futures are at $3366, silver futures are at $37.79, and oil futures are at $63.70.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora 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.
