WEEKLY STOCK MARKET DIGEST: HIGHLY UNUSUAL REBALANCING AHEAD LEADING TO BUYING IN TECH STOCKS

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By Nigam Arora & Dr. Natasha Arora

Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report

Please scroll down for the section ‘Protection Bands and What To Do Now.’

 

HIGHLY UNUSUAL REBALANCING AHEAD LEADING TO BUYING IN TECH STOCKS

To gain an edge, this is what you need to know today.

Highly Unusual Rebalancing

Please click here for a chart of Nasdaq 100 ETF (QQQ).

Note the following:

  • Institutions tend to rebalance near the end of the quarter.
    • In rebalancing, institutions adjust the ratio of stocks and bonds they hold.
    • Over the last three decades, when stocks were down in a quarter, typically bonds went up.
    • In a typical quarter when stocks were down, institutions sold bonds and bought stocks.
  • This quarter is highly unusual in that both stocks and bonds are down.  
  • Until this week, it has not been clear how institutions would rebalance.
  • It appears that institutions are buying tech stocks to rebalance.
  • The chart shows Arora buy signal was given right near the lows to deploy cash and  hedges.
  • The chart shows the Fed rate hike.
  • The chart shows that  is at the high band of the support/resistance zone.
  • The chart shows that RSI is overbought. If it was not for rebalancing, the probability would have been very high for a pullback.
  • The chart shows that volume has been higher in 2022 compared to last year. This indicates that many weak hands have already sold.
  • The chart shows that the volume on yesterday’s rally was low. This happened when sentiment was becoming more positive. This is a negative combination.
  • Next week is the end of the quarter and rebalancing will pick up. If institutions continue the trend of buying tech stocks, expect a move to the upper resistance zone shown on the chart. On the other hand, if institutions are not aggressive with rebalancing, the chart is set up for a pullback.

Marijuana Stocks

Yesterday, the Senate passed a marijuana research bill. The House is expected to take up a marijuana legalization bill next week. Even if the House passes the legalization bill, the Senate is not likely to pass the bill due to Republican opposition.  Do not confuse the research bill with the legalization bill.

In the past, the pattern has been that the momo crowd aggressively bought marijuana stocks on the news from the House and ran them up. When the reality became clear that the Senate was not going to pass the bill, marijuana stocks were sold.

After hours, the momo crowd was aggressively buying marijuana stocks with many stocks running up 5 – 20%. This morning in the pre market, the momo crowd is still buying marijuana stocks but the ferocity has lessened.

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.

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 E.U. and U.S. have reached an  deal to  dependence on Russia.

The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 oil in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is over $44,000. Bitcoin has broken above the triangle pattern that we previously mentioned.  The good news for bitcoin is that Russia is looking at selling its oil and gas for bitcoins. This will give Russia a way around sanctions. However, the U.S. government appears to have means to negatively impact such transactions.

Markets

Our very, very short-term early stock market indicator is 🔒and about to turn 🔒 – it will come down to institutional rebalancing and a short squeeze. Keep in mind this is Friday, and short squeezes tend to occur on Fridays. 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 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.

Gold futures are at $1951, silver futures are at $25.74, and oil futures are $108.98.

S&P 500 futures resistance levels are 4600, 4713 and 4770: support levels are 4460, 4400 and 4318.

 futures are up 86 points.

Protection Bands and What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or short-term bond funds 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.

See also  BULLS HOPING FOR FIFTH FED DAY RELIEF RALLY, MARKET IGNORES NUCLEAR THREAT

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.

 

MOMO BUYS ON NATO PREPARING FOR “RISK OF NUCLEAR INCIDENTS,” JOBLESS CLAIMS LOWEST SINCE 1969

To gain an edge, this is what you need to know today.

Risk Of Nuclear Incidents

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:

  • NATO says it is preparing for “risk of nuclear incidents.”
  • G-7 is planning to warn Moscow about the use of chemical and nuclear weapons in Ukraine.
  • The momo crowd is buying on the news of NATO preparing for a nuclear incident in Ukraine.
    • Consider not being incredulous – the momo crowd has a fresh memory that they were right to buy the virus news in March 2020.
    • The momo crowd already does not believe that the Fed will do what the Fed is saying it will do in terms of raising rates and quantitative tightening.
    • The prevailing wisdom is that a nuclear risk in Ukraine will cause the Fed to stop raising rates and this will result in the stock market shooting higher.
  • The chart shows that the volume was low on yesterday’s pullback.  This is a positive.
  • The chart shows that RSI is overbought but tracing a positive pattern.
  • The chart shows that the stock market has not retraced gains from the short squeeze due to option expiration. This is a positive.
  • The chart shows that the stock market is levitating comfortably above the trend line.  This is a positive.
  • The chart shows that the market is comfortably above the high band of the support zone.  This is a positive.
  • Interest rates pulled back yesterday. The stock market is focused on that as a positive. However, interest rates are going higher again this morning, but the momo crowd has a knack for picking the news it likes and ignoring the news it does not like.
  • Russia is not out of chips.  
    • As an example, Russia is asking Europe to pay for gas in rubles. If Europe agrees, Europe will have to buy rubles and this will help the ruble go higher against the euro and dollar.
    • As another example, Russia took down a pipeline reducing global oil availability by 1M bpd. Please read yesterday’s Afternoon Capsule.  
    • The stock market is assuming that the risk from Russia is behind us.  This may not turn out to be correct yet.   
  • The U.S. is claiming that additional sanctions are coming against Russia. It is not known at this time how Russia will respond.
  • With China supporting Russia, there is a risk that the era of globalization is ending.  This is a negative.
  • Wall Street has a new favorite yield curve to justify buying stocks.

Jobless Claims

Initial claims came at 187K vs. 210K consensus. This indicates that the employment picture is very strong.  This is the lowest level since 1969.

Durable Orders

Durable orders came at -2.2% vs. -0.5% consensus.

Durable orders ex transport came at -0.6% vs. 0.5% consensus.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒 in the early trade.

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 🔒 oil in the early trade.

For longer-term, please see oil ratings.

Bitcoin

There is buying in bitcoin along with buying in speculative stocks.

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 $194, silver futures are at $25.50, and oil futures are $114.82.

S&P 500 futures resistance levels are 4600, 4713 and 4770: support levels are 4460, 4400 and 4318.

 futures are up 121 points.

 

PRUDENT INVESTORS PAY ATTENTION TO THE YIELD CURVE

To gain an edge, this is what you need to know today.

Yield Curve

Please click here for a chart of the yield curve.

Note the following:

  • The chart goes back to 1976.
  • The chart shows the difference between the yield on 10-year Treasuries and 2-year Treasuries.
  • The gray bars on the chart show recessions.
  • The chart shows that when the yield curve inverts it is followed by a recession.
  • The stock market is likely to top out six to twelve months before a recession.
  • The other economic indicators that The Arora Report follows and shares with you in the Morning Capsules are not showing any signs of recession in 2022 at this time.
  • If the yield curve continues to move the way it is moving, it is giving the indication of a potential recession in 2023.
  • There is also a fair probability that the yield curve indicator may not work this time due to the Federal Reserve artificially manipulating the market.
    • For this reason, it is important to not rely exclusively on one indicator but on the full ZYX Asset Allocation Model.
    • The ZYX Asset Allocation Model relies on ten categories of inputs.  Please click here to see the ten categories of inputs.
    • Conventional models are static. They work for a while, and when market conditions change, they stop working.
    • The ZYX Asset Allocation Model is an adaptive model. In plain English, this means that the model automatically changes itself with new market conditions.  Please click here to see how this adaptiveness is achieved.
    • The ZYX Asset Allocation Model has a long, proven track record in both bull and bear markets.
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Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒 stocks in the early trade.

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

API data showed a draw of 4.28M barrels vs. a consensus of a build of 25K barrels.

 data will be released at 10:30am ET, but oil is likely to move based on the potential decision about European sanctions on Russian oil.  Biden is pushing for such sanctions.  Germany is against such sanctions.

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 is range bound and moving with speculative stocks.

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 and bonds are range bound.

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 $1925, silver futures are at $25.05, and oil futures are $112.84.

S&P 500 futures resistance levels are 4600, 4713 and 4770: support levels are 4460, 4400 and 4318.

 futures are down 154 points.

 

BOND SELL OFF AT THE FASTEST RATE BUT STOCK INVESTORS FOCUS ON STOCK MARKET EXUBERANCE

To gain an edge, this is what you need to know today.

Fastest Bond Sell Off

Please click here for a chart of yield on U.S. Treasury Securities at 2-Year Constant Maturity.

Note the following:

  • The chart shows a rapid rise in the yield on 2-year Treasury securities.
  • Yields move inverse to the bond prices. When bonds sell off, yields move higher.
  • Bond sell off is taking place at the fastest rate since 1973.
  • Normally a rapid rise in yields causes a sell off in stocks. However, the data is from the time when the momo crowd did not have such strong control over the stock market.
  • For the time being, in the early trade, stocks are ignoring bond sell off and are encouraged by exuberance in China.
  • There is exuberance in China.
    • Chinese leadership seems to like that they are now able to stand up to the U.S. and not sanction Russia over Ukraine.
    • There are hopes that the Chinese government is about to announce new stimulus.
    • The Chinese regulator is telling companies with U.S. listed securities to get ready for audit disclosures. Until recently, China had not allowed its companies to provide such disclosures. SEC is threatening to delist Chinese companies if they do not provide such disclosures.  Typically, Chinese companies have three years to comply.
    •  is increasing stock buy back to $25 billion from $15 billion.
    •  reported good earnings.
    • Buy zones on China mainland ETF ASHR, Hong Kong ETF FXI, and China internet ETF  will be updated in ZYX Emerging later today.
  • Exuberance from China was carried to stocks in Europe and in a round robin fashion is now coming to the U.S. in the early trade.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒 in the early trade.

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 🔒 in oil in the early trade. Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is forming a triangle formation. A break to the upside above $43,500 has the potential for a substantial rally.

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 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.

Gold futures are at $1929, silver futures are at $25.14, and oil futures are $110.70.

S&P 500 futures resistance levels are 4600, 4713 and 4770: support levels are 4400, 4318 and 4200.

 futures are up 161 points.

 

GURUS KNOW THE ANSWER: SHOULD YOU BUY OR SELL THE RALLY?

To gain an edge, this is what you need to know today.

See also  OPPORTUNITIES AHEAD – GLOBAL BREAKDOWN STARTING – EVENTS FROM JAPAN AND UK DRIVING US STOCKS LOWER

Gurus Know The Answer

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:

  • Here is the key question: should you buy or sell the rally?
  • Over the weekend and this morning, gurus are out in full force claiming that they know the answer for sure.  This is great news for the sheep because the period of indecision is over and now the sheep know the answer. However, if you are a prudent investor and think for yourself, the answer is more complicated.
  • After having carefully studied proclamations from a large number of gurus, here is our take – gurus are talking their book.
    • Permabulls are saying that the bottom is in and investors should buy this rally.
    • Permabears are saying that this rally is a great opportunity to sell.
    • Very few gurus who are not permabears or permabulls are changing their tune.
      • If they were bullish before the market drop, they are saying buy the rally.
      • If they were bearish before the drop, they are saying sell the rally.
  • Here are the bullish arguments.
    • The chart shows a breakout above the support/resistance zone.
    • The chart shows a breakout above the trend line.
    • The chart shows that the market made a higher low and a higher high.
    • The chart shows that the market made a triple bottom.
    • The chart shows that the market is making a “W” pattern.  This is a bullish pattern.
    • The market did not crack more in spite of the Fed, Ukraine, China, and a new virus variant – this is bullish.
  • Here are the bearish arguments.
    • RSI is overbought.
    • The rally has been on low volume.
    • The rally was due to option expiration, and option expiration is now over.
    • Most of the rally is due to short squeeze.
    • The bullish gurus’ genius is not their own but the product of easy Fed policy over the last 14 years.
    • After 13 years, the Fed is about to embark on an aggressive tightening cycle – the genius of bullish gurus will soon disappear.
    • Bearish gurus point to the fourth quarter of 2018 when the Fed started tightening and the market quickly lost 20%.  The Fed did not have the backbone to withstand further stock market drop, and the Fed reversed its policy.  This time the Fed does not have a choice because of inflation.
  • So, what is the answer for investors who think for themselves?
    • There are strong arguments on both sides.
    • Stay nimble and in neutral.
    • Pay attention to the new data as it comes.
    • Stick to the protection bands.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒 in the early trade.

Gold

The momo crowd is 🔒 in 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

There is nothing remarkable in bitcoin trading.

Markets

Our very, very short-term early stock market indicator is 🔒, but know that option expiration related strength tends to reverse.  If the strength of last week related to options starts reversing, expect the machines to jump in and sell the market. 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 $1924, silver futures are at $25.18, and oil futures are $107.50.

S&P 500 futures resistance levels are 4460, 4600 and 4713: support levels are 4400, 4318 and 4200.

futures are down 43 points.

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Nigam Arora

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

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.

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