By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Rate Cut Fever
Please click here for a chart of small cap ETF (IWM).
Note the following:
- The chart shows a strong move up, about 3%, in small cap stocks yesterday.
- The chart shows in the early trade small cap stocks are moving even higher.
- The chart shows in spite of the large move yesterday, small caps are still in zone 2 (resistance).
- The chart shows small caps are still below the prior high marked by the upper band of zone 1(resistance) even though S&P 500 and Nasdaq have moved to new highs.
- Money is flowing aggressively in IWM for two reasons:
- The belief is building that small caps will catch up.
- Small caps are interest rate sensitive.
- A 50 bps interest rate cut fever has all of a sudden gripped the stock market after the release of CPI data.
- Some momo gurus are even calling for a 100 bps cut. The prevailing wisdom has shifted to the data no longer being important and President Trump will get what he wants from the Fed. There is merit to this thinking as independent thinkers driven by data are rapidly vanishing.
- On August 4, we wrote:
In The Arora Report analysis, the probability of a rate cut in September is 70%.
- In The Arora Report, the probability of a rate cut in September has now risen to 85%. In The Arora Report analysis, there are still some independent thinkers at the Fed who are not going to appease President Trump.
- In The Arora Report analysis, the amount of the rate cut in September will come down to the data between now and the Fed meeting.
- In The Arora Report analysis, the Producer Price Index (PPI) data that will be released tomorrow at 8:30am ET has gained more importance. The stock market’s reaction to PPI will confirm if the latest prevailing momo crowd wisdom of “data does not matter” is transient or longer term.
- On the 50 bps rate cut fever, in addition to small caps and tech stocks, money is also flowing into interest rate sensitive sectors such as housing and banks. The housing ETF of choice is ITB, and the banking ETF of choice is KBE. Bank ETF KBE is in the ZYX Allocation Model Portfolio. Home builder KBH is in ZYX Buy in the portfolio that surrounds the Core Model Portfolio.
- 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.
Money Flowing Into China
As China gains the upper hand over the U.S., foreign money is flowing into China. Overnight, stocks in Hong Kong were up 2.6%.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Apple (AAPL), Alphabet (GOOG), Meta (META), and Tesla (TSLA).
In the early trade, money flows are neutral in Amazon (AMZN), Microsoft (MSFT), and Nvidia (NVDA).
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. 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 *** 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 driven by speculation about the results of the Trump Putin meeting on Friday.
API crude inventories came at a build of 1.5M barrels vs. a consensus of a draw 0.8M barrels.
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 seeing buying.
Markets
Interest rates are ticking down, and bonds are ticking up.
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.
S&P 500 futures are trading at 6482 as of this writing. S&P 500 futures resistance levels are 6500 and 6700: support levels are 6256, 6131, and 6017.
DJIA futures are up 123 points.
Gold futures are at $3413, silver futures are at $38.66, and oil futures are at $62.85.
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.
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.
