By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Deploy Cash And Reduce Hedges
It is time to deploy more cash. Please scroll down to the “Protection Band And What To Do Now” section below.
Consider reducing hedges. Please see separate posts.
Hedges by themselves have become nicely profitable. It is time to book some of those profits.
These signals are based on the presumption that market mechanics will continue to drive the stock market to the upside. Market mechanics are very powerful. To gain an edge by knowing market mechanics in-depth, listen to the podcasts in Arora Ambassador Club.
However, keep in mind that geopolitics and new data may cause reversal of this call quickly. Four important risks to keep in mind are the following:
- Hezbollah opening a northern front in Israel
- Government shutdown
- Unsustainable U.S. government spending
- Unsustainable U.S. consumer spending
Wage Increases Moderate
Please click here for a chart of Apple stock (AAPL).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of AAPL stock is being used to illustrate the point. AAPL is the largest stock and carries heavy weight in indexes. For this reason, all investors should pay attention to AAPL.
- The chart shows that Apple stock fell after earnings.
- The chart shows that in spite of Apple lowering its revenue guidance, the stock is still in the support/resistance zone.
- The chart shows that the Arora call was given to hedge AAPL position when the stock traded as high as $188.85. AAPL stock is trading at $174.40 as of this writing in the premarket.
- Apple is long from $4.68 and is the largest position in ZYX Buy Model Portfolio.
- Hedges on Apple position have now become very profitable. There is likely to be a new signal to take partial profits on Apple hedges.
- In after hours in response to Apple guidance, AAPL stock fell as low as $171.19. This morning, the momo crowd is taking advantage of the dip and aggressively buying AAPL stock.
- Here are the important details from Apple earnings:
- Apple (AAPL) provides limited guidance. The guidance implies that the revenue for the all important December quarter will be about 5% below the consensus.
- On the positive side, Apple has an installed base of over 2B devices and service revenues are growing. Apple reported services revenue of $22.3B vs. $21.6B consensus.
- Apple revenues fell for the fourth consecutive quarter.
- iPhone sales came at $43.8B in line with the consensus.
- Apple business in China declined by 2.5% to $15.1B.
- On the positive side, Apple revenue in India hit an all time high. However, in India Apple is starting from a very small base.
- Prudent investors need to keep an eye on the antitrust trial of Alphabet (GOOG, GOOGL). Alphabet is reportedly paying $20 – $25B per year to Apple to keep Google as the default search engine in Safari. If Alphabet loses at the trial, this large Apple revenue may vanish.
- Consider buying AAPL stock if not in it or starting a trade around position if already in it, when AAPL stock falls in the new Arora buy zone. The new buy zone is *** (To see the locked content, please take a 30 day free trial). A trade around position is a technique used by billionaires. To learn more, see Trade Management Guidelines.
- The chart shows that those investors who bought AAPL stock when it fell in Arora buy zone have made great profits.
- Prudent investors should note that based on Apple’s earnings, if it was any other stock, it would have already fallen in the new Arora buy zone.
- The jobs report is weak for the first time in a long time. The most important data point is that in spite of headlines of large union wage hikes, the average hourly earnings increase is less than expected and amounts to only 2.4% annualized. Here are the details:
- Non-farm payrolls came at 150K vs. 175K consensus.
- Non-farm private payrolls came at 99K vs. 143K consensus.
- Unemployment rate came at 3.9% vs. 3.8% consensus.
- Average work week came at 34.3 vs. 34.3 consensus.
- Average hourly earnings came at 0.2% vs. 0.3% consensus.
- Yields are falling and bonds are rising on the weak jobs report.
- 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 (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet, Meta (META), Tesla (TSLA), and Apple.
In the early trade, money flows are positive in S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQ).
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 has moved above $2000 on the weak jobs report.
The momo crowd is *** gold in the early trade. Smart money is *** gold 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 *** oil in the early trade.
For longer-term, please see oil ratings.
Bitcoin (BTC.USD) is range bound.
Our very, very short-term early stock market indicator is ***. However, remember it is Friday. Fridays have crosscurrents. Short squeezes often occur on Fridays causing the market to rise. On the other hand, many funds may lighten up to reduce risk ahead of the weekend not knowing what is going to happen in the Middle East. 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 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 $2006, silver futures are at $23.22, and oil futures are at $82.71.
S&P 500 futures are trading at 4353 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 up 189 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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