By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Unprecedented Warning
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- One of the first signs that a recession may be coming is that companies start cutting advertising.
- SNAP is not an important company for the big picture in the stock market, but its unprecedented warning is stoking recession fears.
- SNAP derives its revenues from advertising.
- SNAP issued its prior guidance on April 21, 2022.
- Only a month later, SNAP is warning of a rapid deterioration in the macroeconomic environment.
- SNAP is guiding both revenue and adjusted EBITDA below the low end of the prior guidance.
- SNAP stock fell about 30%.
- SNAP earnings are also putting downward pressure on GOOG, FB, PINS, TWTR, TTD, KIND, MGNI, PUBM, and ROKU.
- The chart shows a significant drop in NASDAQ 100 ETF QQQ on SNAP earnings. The drop was less in S&P 500 and DJIA 100 but still a significant drop.
- The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
- The chart shows that there was a net supply of stocks after SNAP earnings, but the net supply did not last very long.
- After the drop in the market, the VUD indicator has been mostly green, indicating net demand for stocks.
- This indicates that the crowd that buys the dip is well and healthy.
- The foregoing pattern is good for the short term in that buyers are stepping up to buy the dip. However, historically a bottom is not formed until the buy the dip crowd incurs such high losses that they become fearful. For example, if the VUD indicator instead of turning mostly green had stayed orange and the magnitude on the supply side had dramatically increased, that would have been an indication of a potential strong bottom.
PMI – The Leading Indicator
Purchasing Managers Index (PMI) is a leading indicator.
Eurozone’s Flash Manufacturing PMI came at 54.4 vs. 54.9 consensus, and Flash Services PMI came at 56.3 vs. 57.8 consensus.
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 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.
Markets
Our very, very short-term early stock market indicator is 🔒 but due to rebalancing it can quickly turn 🔒. Please read yesterday’s Morning Capsule. 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 $1858, silver futures are at $21.91, and oil futures are $110.54.
S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.
DJIA futures are down 169 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 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.
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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.
