By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
86% Probability Of A Rate Hike
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 probability of a 25 basis point rate hike in the FOMC meeting has risen to 86%.
- Momo gurus were previously predicting that the Fed would not raise interest rates in the upcoming meeting and that was the reason to buy stocks. Momo gurus are now accepting that the Fed is likely to raise rates. However, momo gurus still maintain that the reason to buy stocks is that the Fed will cut rates 3 – 4 times this year.
- In The Arora Report analysis, the probability of the Fed cutting interest rates this year is very low. The chart shows that the stock market is consolidating right above the top band of the support/resistance zone.
- The chart shows that RSI is no longer overbought. The interpretation of RSI is that the stock market can go either way.
- 59 S&P 500 companies are reporting earnings this week.
- As is their pattern, the momo crowd is buying stocks ahead of these earnings on hope strategy.
- A noteworthy earnings report this morning is from Charles Schwab (SCHW). Normally, Schwab earnings are a non-event. However, this time Schwab earnings are very important as the stock has taken a major hit due to unrealized losses on its balance sheet. The momo crowd initially bought SCHW on earnings, ignoring the unrealized losses. As of this writing, selling is coming in. Prudent investors should carefully watch Schwab’s stock.
- A part of the rise in the stock market has been due to excitement over artificial intelligence. Investors should carefully watch GOOG. There are three pieces of important news:
- Bulls are excited that Sundar Pichai, CEO of Alphabet, did well in his 60 Minutes interview.
- Google has an urgent project named Magi underway to incorporate artificial intelligence in its offerings similar to what Microsoft (MSFT) has already accomplished. There are reports that more than 160 people are working on Magi.
- There is speculation that Samsung (SSNLF) is looking at switching from Google to Bing as the default on its phones. In The Arora Report analysis, this is the most important piece of information.
- Prudent investors should ask the question, “Could Apple (AAPL) be the next to consider switching away from Google?” Google pays billions of dollars to Apple for the privilege of keeping Google as the default search engine on iPhones.
- There is a fortune to be made in artificial intelligence. Investors should consider building their knowledge. Listen to the in-depth podcasts titled “Full Frontal Assault: ChatGPT Vs. Bard” and “ChatGPT: Potentially The Most Important Breakthrough Since The iPhone.”
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.
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin has fallen below $30,000 as of this writing. There is disappointment among bitcoin bulls that whales did not take advantage of low liquidity over the weekend to run bitcoin up further.
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 $2013, silver futures are at $25.47, and oil futures are at $81.91.
S&P 500 futures are trading at 4163 as of this writing. S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.
DJIA futures are up 22 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 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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