By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Profiting From Stock Market Hopium
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 Friday was an outside day. It is a bullish technical signal.
- The chart shows that the stock market hit the breakout line before bouncing.
- The chart shows that RSI is close to oversold.
- The set up shown on the chart is a good setup for a Santa Claus rally.
- The chart shows the higher volume on Friday. This indicates conviction.
- In the early trade, initially there was strong buying. As of this writing in the premarket, selling is coming in.
- Momo gurus have a new narrative – after lower PCE data, the Fed will continue cutting rates. Momo gurus are urging their followers to ignore everything the FOMC said and everything Powell said in his press conference.
- In The Arora Report analysis, in spite of bullish technical signals and bullish seasonality, investors should not ignore negative macro signals that arose from the FOMC decision and many investors in the stock market finally coming to the realization that the data does not support aggressive rate cuts.
- Right now, the stock market is running up on hopium. Once Trump is inaugurated, the stock market will have to meet reality.
- The Arora Report call is to consider taking partial profits on tactical positions between Christmas and New Years. Investors should be prepared to take more profits on tactical positions between New Year and Trump’s inauguration. Open new tactical positions on dips and on new signals.
- The Arora Report call is to continue to hold good strategic positions.
- There is no change in the protection band. Please see details in the “Protection Band And What To Do Now” section below. For investors who are underinvested relative to the protection band and are aggressive, consider scaling in on strategic positions when they fall in the buy zones.
- In The Arora Report analysis, the ideal time to buy will be if there is a 6% – 10% correction.
- Since Trump’s election, across all services from The Arora Report, there have been 84 profit taking signals. This illustrates the power of combining tactical positions with taking partial profits on some strategic positions. Please see the Trade Management Guidelines for how to properly take partial profits.
- 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
Holiday Schedule
Friends, happy holidays to you and your families. All of us at The Arora Report are wishing you the best.
During the reduced holiday schedule, posts on individual positions and new positions will be done as needed. The next Capsule will be on Friday.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Alphabet (GOOG), Meta (META), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are neutral in Amazon (AMZN), Microsoft (MSFT), and Apple (AAPL).
In the early trade, money flows are neutral 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 *** in the early trade.
Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.
Very Very Short-Term Indicator
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.
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
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.
S&P 500 futures are trading at 5992 as of this writing. S&P 500 futures resistance levels are 6017, 6131, and 6256: support levels are 5926, 5748, and 5622.
DJIA futures are down 211 points.
Gold futures are at $2628, silver futures are at $30.15, and oil futures are at $69.11.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The protection band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash, Treasury bills, short term fixed income, 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.
A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.
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.
