By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Carry Trade Unwind Not Over
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows that QQQ gapped down and opened yesterday below the support/resistance zone.
- The chart shows the dip was bought.
- The chart shows QQQ is now in the support/resistance zone.
- The chart shows that drop yesterday occurred on higher volume. This indicates conviction in selling.
- The chart shows there is buying this morning.
- There are ten different indications that combine together to show a capitulation. In The Arora Report analysis, nothing even close to a capitulation has happened.
- When a capitulation happens, it often leads to a ‘back up the truck and buy stocks’ signal. There is no such signal at this time.
- The carry trade unwind was the primary cause of the sell off yesterday.
- There is a widespread mistaken belief among less informed investors that the carry trade unwind is over.
- In The Arora Report analysis, only those funds that were overstretched were forced to unwind yesterday.
- In The Arora Report analysis, those with deeper pockets will take advantage of rallies to unwind the carry trade.
- The buy the dip mentality is well and alive. It is on display in Japan, where stocks jumped about 10% overnight.
- Commodity Trading Advisors (CTAs) manage about $300B. These advisors primarily trade futures in a systematic manner. In The Arora Report analysis, CTAs were caught by surprise over the last three days. Positioning of CTAs is such that they are likely to sell the rallies.
- On the positive side, momo gurus have a new narrative. Their narrative is that the Fed will cut at least by 50 bps three times this year. The momo gurus are also demanding that the Fed cut interest rates by 75 bps in an emergency meeting. This narrative seems to be working. The momo crowd is back to aggressively buying stocks.
- In The Arora Report analysis, without further turbulence, there is almost zero probability of an emergency Fed meeting and an immediate 75 bps cut. However, if the Fed were to cut by 75 bps, there would likely be a rip roaring stock market rally, leading to new highs.
- The buying the dip mentality was so strong yesterday that Wall Street’s fear gauge VIX (VIX) saw the biggest intraday drop ever in history. VIX dropped from the intraday high of 65 to close at 38. This indicates that fear evaporated among the momo crowd very quickly.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Alphabet (GOOG), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are negative in 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 *** 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.
Gold
Gold and silver are being sold presumably to raise funds to unwind the carry trade.
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
Oil is being sold on a delay of reprisal from Iran against Israel.
The momo crowd is *** in oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is being bought as bitcoin whales are promoting the idea that support at $50,000 held and now is the time to buy.
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 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 $2434, silver futures are at $26.80, and oil futures are at $72.42.
S&P 500 futures are trading at 5239 as of this writing. S&P 500 futures resistance levels are 5256, 5400, and 5500: support levels are 5210, 5020, and 4918.
DJIA futures are up 151 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.
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.
