By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Recession Worries
Please click here for a chart of Russell 2000 ETF (IWM).
Note the following:
- The chart shows that small caps have accelerated to the downside and are now far away from the downward sloping trendline. This is negative for the stock market.
- The chart shows that small caps have now broken below the support/resistance zone shown on the chart. This is negative for the stock market.
- In contrast to the small caps, large caps are holding up. Here are the reasons for this discrepancy:
- Small caps are more impacted by a recession than large caps.
- Large caps are held up by the AI frenzy. The AI frenzy is not helping small caps.
- Small caps are signaling a recession ahead at a time when the momo crowd believes in no landing.
- In addition to small caps, there are other troubling signals. The economy has been held up by excessive spending by the consumer. However, consumer defaults on loans are rapidly increasing, as are bankruptcies.
- In The Arora Report analysis, the liquidity that the consumer has enjoyed is going to become less and less going forward.
- To add to the troubles, the U.S. government shutdown is looming if both parties cannot come to an agreement.
- UAW is expanding its strike against General Motors (GM) and Stellantis (STLA). If the strike is prolonged, it will have a negative impact on the stock market.
- Global trade is falling at the fastest rate since 2020. This has a negative economic impact.
- Worries about the Chinese property sector are resurfacing causing stocks in Hong Kong to fall 1.8%.
- On the positive side, there is excitement about Amazon (AMZN) investing $4B in AI startup Anthropic. Amazon is trying to follow the same play Microsoft (MSFT) made with OpenAI, the creator of ChatGPT. OpenAI uses Microsoft’s Azure platform. Anthropic will use Amazon’s AWS cloud platform.
- Anthropic will also use AI chips from Amazon. In the early trade, this is having a negative impact on Nvidia (NVDA) and AMD (AMD). Even though a fortune is to be made in AI over the next seven years, this illustrates that, at times, it will be treacherous. It is important to completely follow The Arora Report system to minimize risks and maximize returns in AI. It is especially important to follow the Trade Management Guidelines and not get carried away with enthusiasm about AI.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon and Apple (AAPL).
In the early trade, money flows are negative in Nvidia, Microsoft, Alphabet (GOOG), Meta (META), and Tesla (TSLA).
In the early trade, money flows are mixed 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 *** 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 (BTC.USD) is range bound.
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 $1945, silver futures are at $23.73, and oil futures are at $89.83.
S&P 500 futures are trading at 4348 as of this writing. S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.
DJIA futures are down 121 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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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.
