DEPLOY CASH AND REDUCE HEDGES – INFLATION BELOW EXPECTATIONS

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By Nigam Arora & Dr. Natasha Arora

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

Deploy Cash And Reduce Hedges

The trigger for the call to deploy cash and reduce hedges is two-fold:

  • Market mechanics of year end chase.  This market mechanic results in money managers aggressively buying stocks even if their opinion of the stock market is bearish.  Please listen to the podcast on the subject for more in-depth information.
  • Lower than expected CPI.

Please scroll down to the Protection Band And What To Do Now section for the changes.  The changes should be made in small tranches, especially if the stock market pulls back after this morning’s spike up.

CPI

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 chart shows that the stock market is ripping higher this morning on better than expected CPI.
  • The chart shows that the next target is the mini resistance zone.
  • The chart shows when hedges were reduced previously.  The prior call was to deploy more cash.  Now, there is a new call to deploy more cash and reduce hedges further.
  • RSI on the chart shows that the market is overbought.  If the market pulls back due to overbought conditions, the pullback should be used to deploy more cash and reduce hedges.
  • CPI came better than expected.  Here are the details:
    • Headline CPI came at 0.0% vs. 0.1% consensus.
    • Core CPI came at 0.2% vs. 0.3% consensus.
  • Home Depot (HD) earnings have broader implications.  Home Depot is also in the Dow Jones Industrial Average (DJIA).  Home Depot reported earnings slightly better than the consensus.  Prudent investors should note that Home Depot expects fiscal year earnings to be down 9% – 11% and same store sales to drop by 3% – 4%. In spite of this negative data, HD stock is being aggressively bought this morning on earnings.
  • 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.
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Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).

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 *** (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 *** gold 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

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 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 $1949, silver futures are at $22.42, and oil futures are at $78.53.

S&P 500 futures are trading at 4487 as of this writing.  S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

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DJIA futures are up 355 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 seven 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

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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