RUMORS OF BIDEN MOVE TO COUNTER RUSSIA TRIGGER ANOTHER STOCK MARKET DOWN LEG

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By Nigam Arora & Dr. Natasha Arora

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

Potential Russian Invasion

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

Note the following:

  • Stocks were set up for a bounce when stock futures opened yesterday. Futures went higher as expected.
  • This morning as the Ukraine situation worsens, futures have given up their gains and turned red. The last thing the stock market needs is a Russian invasion.
  • The momo crowd is aggressively selling this morning.
  • A concern is developing this morning that Biden may be getting ready to defend Ukraine.
    • If some of these reports are true, this is a major departure from the consensus.
    • The consensus has been that the U.S. will depend on economic sanctions to punish Russia but will not intervene to defend Ukraine.
    • NATO has put armed forces on standby.
    • NATO is sending additional fighter jets and ships to eastern Europe.
    • The U.S. is removing some staff members and families from its embassy in Ukraine.
  • Technicals are set up for a rally.
    • The chart shows that volume on Friday was heavy and RSI was very oversold.
    • When heavy volume occurs and RSI is very oversold after a significant drop in the market, the stock market often rallies. The reason is that the heavy volume is an indication of a shake out of weak hands.
    •  curve has started inverting.  This is bullish for the short term.
    • We shared with you on Friday that the momo crowd was aggressively buying puts expiring Friday and market makers were selling stocks to hedge.
    • A vast majority of the puts bought by the momo crowd have now expired worthless, and the momo crowd is now unprotected.
    • It is too early to tell if the momo crowd buying puts and market makers selling to hedge will repeat this week.
    • Put volume on Friday was a record 42M.  This is bullish.
    • NASDAQ weekly ratio of new highs to new lows hit the lowest level since 2008 – 2009.  Historically, such a reading leads to a bounce.
  • There were not many corporate buybacks last week.  Our expectation is that corporations will likely take advantage of lower prices and start buying.  This is bullish.
  • Blind money is beginning to sell.   ETF saw a net outflow of $14.1B last week.  This is bearish.
  • In addition to Ukraine and technicals, the two major factors ahead are the following:
    • Fed announcement on January 26
    • Earnings, especially from megacaps are ahead. If megacaps report good earnings and give good guidance, expect a rally, assuming the Ukraine situation does not worsen and the Fed announcement is as expected. If earnings or guidance are worse, expect NASDAQ to enter a bear market quickly.
  • There is a significant difference between long duration momo stocks, NASDAQ, and S&P 500.  Investors with well diversified portfolios are doing relatively well.  Whereas, those invested mostly in momo stocks are incurring huge losses.
  • The chart shows the support zone.
  • The chart shows that in spite of the drop, SPY is still well above the support zone.
  • S&P 500 is still above where it was during the October 2021 low. 
  • Sentiment is now in the extreme negative zone.  Sentiment is not a precise timing indicator but is a contrary indicator.  In plain English, this means that when sentiment turns extremely negative , the market tends to bounce.
  • It is important for investors to pay attention to “Protection Bands and What To Do Now” section below.  At a time when the momo crowd is more than 100% invested with margin, Arora portfolios are well diversified and 35 – 52% protected.  Moreover, our guidance to conservative investors has been to not start new long term positions and for growth investors to be highly selective.  We are again seeing that investors, investment advisors, and money managers who attended the Bullet Proof seminar are doing significantly better than those who have not attended the seminar.
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Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively 🔒 (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 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 $1840, silver futures are at $23.87, and oil futures are $83.45.

S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

 futures are down 409 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 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.

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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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This post was just published on ZYX Buy Change Alert.

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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.

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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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