By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Powell Speech Ahead
Please click here for a chart of 20+ Year Treasury Bond ETF (TLT).
Note the following:
- The chart shows that bonds have made an aggressive move from the lows.
- The chart shows the upward sloping trendline indicating the steadiness of the move up.
- The chart shows that bonds have now reached the lower resistance zone.
- In The Arora Report analysis, prudent investors should watch if bonds break above the lower resistance zone. If they do, it will be a trigger for another leg up in the stock market.
- The stock market has just posted the second best November since the 1980s.
- The up move in the stock market was triggered by rising bonds as shown on the chart, but the move was amplified by market mechanics.
- Market mechanics are very powerful. About two thirds of the up move in November is due to market mechanics. The Arora Report call of market mechanics being to the upside driving the market substantially higher that was made at the beginning of the move has proven spot on.
- All investors should consider taking time to learn about market mechanics. Learning about market mechanics will help you extract significantly more money out of the markets. Due to their high value, Wall Street professionals keep market mechanics close to their chest. The best way to get access to Wall Street secrets is to listen to the podcasts in Arora Ambassador Club. Arora Ambassador Club has several podcasts on market mechanics and more will be coming.
- Powell is speaking in Atlanta today. Prudent investors should watch to see if Powell pushes back on the stock market’s aggressive projections of rate cuts. If Powell endorses the stock market’s projections, expect a rip roaring rally. If Powell strongly contradicts Wall Street’s projections, expect a pullback.
- ISM Manufacturing Index will be released at 10am. This data has the potential to move the stock market.
- 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.
Blind Money And Month End Buying
This morning, there are crosscurrents between month end buying and front running blind money.
- There was aggressive month end buying at the close yesterday.
- Some of that is being given back this morning. This is negative.
- On the positive side, Wall Street is front running blind money. Wall Street hopes to buy stocks now and sell them to blind money at higher prices. Blind money is the money that blindly flows into the stock market on the first two days of the month without any analysis and irrespective of market conditions.
Magnificent Seven Money Flows
In the early trade, money flows are negative in Alphabet (GOOG), Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Meta (META), Tesla (TSLA), and Apple (AAPL).
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 *** 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.
There is significant confusion about what OPEC+ is doing.
The momo crowd is *** in 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 with a positive bias. Crypto bulls are hoping that whales will take advantage of low liquidity over the weekend and drive bitcoin above $40,000. A move above $40,000 will suck in more retail investors.
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 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.
Gold futures are at $2055, silver futures are at $25.58, and oil futures are at $76.01.
S&P 500 futures are trading at 4567 as of this writing. S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.
DJIA futures are down 37 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 seven 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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