By Nigam Arora
To gain an edge, this is what you need to know today.
Capitulation Criteria
Please click here for a chart of leveraged semiconductor ETF (SOXL).
Note the following:
- Semiconductors reflect the AI trade, and SOXL is the momo crowd’s favorite.
- The chart shows SOXL fell 38.7% yesterday. In The Arora Report analysis, over 50% of the drop in SOXL was due to forced selling in momo crowd accounts prompted by margin calls.
- The chart shows SOXL has fallen 86.5% since its high in June. Imagine those who listened to momo gurus in the media calling for their followers to go all in on SOXL. There is anecdotal evidence of many in the momo crowd selling other stocks to go all in in SOXL. An investor buying $1M of SOXL at the top would now have $135K left.
- The Arora Report call has been for a 30% – 50% drawdown in aggressive AI stocks. That call was made when there was uber bullishness in AI stocks and nobody else was talking about such a big draw down. That Arora call has now proven spot on.
- Yesterday started many bullish gurus throwing in the towel on semiconductors and issuing sell signals on semiconductors, while giving buy signals on the rest of the market. It is kind of like closing the barn door after the horses have bolted.
- The foregoing illustrates the importance of getting ahead of the curve for prudent investors.
- The chart shows SOXL touched the top band of zone 4 (support).
- The chart shows a new divergence is developing in RSI. In plain English, this means the SOXL price is now much lower compared to when RSI shown on the chart hit its low, but RSI is now much higher.
- A series of two RSI divergences shown on the chart is an indication that supports capitulation.
- The chart shows the volume yesterday was very heavy. Very heavy volume is an indication of capitulation.
- Now, 75% of the criteria for capitulation in semiconductors is met. Here are the important points:
- The 75% applies ONLY to semiconductors. It does not apply to the rest of the market.
- Investors in the rest of the market are showing great complacency. Great complacency means there is significant room to the downside.
- If the rest of the market craters, it can pull down semiconductors.
- Understanding the secrets of capitulation can give investors a huge edge. Those who want to gain the edge should consider listening to the podcast titled, “THE TEN SECRETS OF EPIC CAPITULATION RICHES” in Arora Ambassador Club.
- This is very different from March 9, 2009 when The Arora Report issued the now famous back up the truck and buy stocks signal. Hindsight shows that the long bull market started on March 9, 2009 after the Great Financial Crash.
- When the Arora back up the truck and buy signal was given, it was for the entire market.
- The March 9, 2009 signal was given when Wall Street was almost universally bearish and giving sell signals. Momo gurus had gone into hiding. The momo crowd had lost 80% – 90% of their portfolios.
- In contrast to March 9, 2009, Wall Street is now almost universally bullish and giving buy signals. In spite of often being wrong, momo gurus are the stars of the media.
- Prudent investors should note that momo gurus do not use stops and do not give position sizes. As SOXL fell, momo gurus continued to urge their followers to buy SOXL. Finally, yesterday momo gurus were sheepish and threw in the towel calling for their followers to sell SOXL. This is one of the indications of capitulation.
- Of note is The Arora Report has given buy signals to start trade around positions on semiconductors taking advantage of the big drop. A trade around position is a technique used by billionaires and hedge funds that can dramatically increase profits and reduce risk. From the Trade Management Guidelines, the first line of defense is the position size. All Arora signals include position size.
- Smart money often does the opposite of momo gurus at inflection points.
- Prudent investors should note that the jobs report just released is a shocker. The jobs report had the potential to negate the developing capitulation in semiconductors. The wisdom on Wall Street yesterday in the face of semiconductor rout was that a rate hike in December was off the table. In The Arora Report analysis, the jobs report puts a rate hike back on the table. Here are the details of the jobs report:
- Headlines nonfarm payrolls came at 165K vs 65K consensus.
- Private nonfarm payrolls came at 159K vs 50K consensus.
- Average hourly came at 0.4% vs 0.3% consensus.
- Unemployment came at 4.1% vs 4.2% consensus.
- Average work week came at 34.4 vs. 34.4 consensus.
- University of Michigan consumer sentiment will be released at 10am ET and may be market moving.
- Markets always have crosscurrents. After the rout in semiconductors and the jobs report shocker combined with positive seasonality, the crosscurrents are now significantly more severe than normal. At this time, it is important to not get carried away by permabears or permabulls who dominate the media. Consider making decisions driven by hard data using a proven adaptive framework such as the ZYX Asset Allocation Model with inputs in ten categories.
- The easiest, practical way to handle these severe crosscurrents is to follow the Arora Protection Band.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Nvidia (NVDA) and Tesla (TSLA).
In the early trade, money flows are neutral in Amazon (AMZN), Alphabet (GOOG), and Meta (META).
In the early trade, money flows are negative in Apple (AAPL) and Microsoft (MSFT).
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 *** stocks 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. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary 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 *** in gold in the early trade. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
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 seeing selling.
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 7399 as of this writing. S&P 500 futures resistance levels are 7541, 7626, and 7733 : support levels are 7318, 7194, and 7032.
DJIA futures are down 485 points.
Gold futures are at $4058, silver futures are at $51.84, and oil futures are at $91.03.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora 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.
