By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Raise Cash
It is time to increase cash by 4%. Hedges were recently raised. Please see the protection band section below.
The bull market is intact, but the probability of a pullback has gone up. The tentative plan is to buy the pullback. Stay tuned to the Real Time Feeds
Hotter 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 has broken the upward sloping trendline that has defined the rally.
- The chart shows the Arora call to raise hedges prior to the drop.
- The chart shows the support zone from which the breakout occurred. The tentative plan is to buy if the stock market pulls back to the support zone. However, this will need to be adjusted – read the next point.
- The probability of the stock market pulling back to the support zone is less than 50%. The reason is that the buy the dip crowd is already aggressively buying the dip and is prepared to aggressively buy more. Stay tuned to the Real Time Feeds of The Arora Report for more information.
- The new data shows that inflation is hotter than expected. Here are the details:
- Headline CPI came at 0.4% vs. 0.3% consensus.
- Core CPI came at 0.4% vs. 0.3% consensus.
- As a reference, the new data equates to inflation at an annualized rate of 4.8%. The Fed’s target is 2%.
- In The Arora Report analysis, this time, the momo gurus are going to have difficulty persuading their followers to buy stocks. One reason is that momo gurus have been wrong at every step of the way this year. Having said that, do not underestimate the cleverness of momo gurus to come up with a new narrative to persuade investors to buy stocks. At the same time, do not underestimate the power of greed in the momo crowd. The momo crowd is very easy to influence because at best, the momo crowd does shallow analysis and is driven by the herd mentality.
- It is worth repeating that the bull market is intact.
- It is also worth repeating that the tentative plan is to buy on a pullback.
- It is also worth repeating that you can buy the pullback only if you are holding enough cash or you have hedged positions.
- Notwithstanding the foregoing, nothing is cast in stone. Prudent investors stay flexible and respond to new data as it comes in. The foregoing is only the most probable scenario, but it can change rapidly. For this reason, it is important to regularly read the Morning Capsules.
- 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.
Buy Zones And Buy Now Ratings
Consider not starting any new positions from the long side unless there is a specific post or there is an inverse ETF.
Starting new positions from the short side is fine.
This tentative plan will change as new data comes in. Consider being patient and staying tuned to the Real Time Feeds.
Magnificent Seven Money Flows
In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), 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 *** stocks in the early trade.
Gold
The momo crowd is *** 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 build of 3.034M barrels vs. a consensus of 2.415M barrels.
The momo crowd is *** in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is being sold on hotter inflation data. This shows again the false narrative that bitcoin have promoted of bitcoin being a hedge against inflation.
Markets
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 $2350, silver futures are at $28.05, and oil futures are at $85.73.
S&P 500 futures are trading at 5186 as of this writing. S&P 500 futures resistance levels are 5210, 5256, and 5400: support levels are 5020, 4918, and 4852.
DJIA futures are down 446 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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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.
