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

Reduce Cash

The Arora Report gave a sell signal one day before the market top. Of special note are our statements,

It is time to take more partial profits or full profits depending upon individual situations.

It is imperative to take more partial profits on the stocks that are based on the momo strategy.

Since then ETF ARKK, the favorite of the momo crowd has fallen 27.98% and was down 33% intraday.  Many momo stocks have fallen 40 – 70%.

It is time to judiciously reduce cash by buying stocks and ETFs.  For details, please see Protection Bands and What To Do Now? section below.

As a reminder, yesterday hedges were reduced.

It is important to know that there are still a good amount of hedges and a good amount of cash.  The reason is that this market is a bubble – investors have the task of making great profits while protecting themselves at the same time.

Biggest Divergence In 28 Years

Please click here for a chart of  S&P 500 ETF (SPY) which represents the benchmark for the stock market index (SPX).

Note the following:

  • The chart compares SPY to Dow Jones Industrial Average ETF (DIA), Nasdaq 100 ETF (QQQ), SPAC ETF (SPAK) and the ETF (ARKK).  ARKK is the ETF  in which the momo crowd has been putting their parent’s retirement in because they did not want their parents to take risks and they considered ARKK safe.
  • The chart shows Arora’s sell signal for momo stocks.
  • The chart shows that QQQ has fallen 9.86%, SPAK has fallen 22.01%, and the momo crowd’s low-risk safe ETF ARKK has fallen 27.98%.  These losses are based on the close during regular hours.  If you look at intraday, the losses for the momo crowd have been much higher.  For example, ARKK has been down as much as 33%.
  • The divergence between QQQ and DIA has been the largest in 28 years.
  • The divergence provides opportunities and pitfalls.
  • To capture the opportunities and avoid the pitfalls investors need to be mindful of mean reversion that often occurs in the markets. In plain English, this means that in the short term, stocks and ETFs that have gone up too much pull back; at the same time, stocks and ETFs that have fallen too much bounce.  Let this be your guiding light. 

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 🔒.

Gold

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

For longer-term, please see gold and silver ratings.

Oil

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

For longer-term, please see oil ratings.

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 $1711, silver futures are at $25.91, and oil futures are $65.25.

S&P 500 futures resistance levels are 3860, 3950 and 4000: support levels are 3770, 3630 and 3600.

DJIA futures are up 83 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, on dips, 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, 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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