By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Major Risk Ahead
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- There is a major risk to the stock market in four days coming from China.
- Right now, prudent investors are paying close attention to Taiwan. Prudent investors look ahead. As usual, the momo crowd is oblivious because the momo crowd is mostly caught up in the present momentum and does very little good analysis.
- The chart shows Taiwan Semiconductor (TSM) compared to QQQ.
- Taiwan Semiconductor is based in Taiwan. Foxconn, the manufacturer of iPhones, is also headquartered in Taiwan. The Taiwan economy is rich with technology. Taiwan ETF EWT is 62% technology based.
- The chart shows TSM lagging behind QQQ. TSM has underperformed by 23.8% despite being the manufacturer of the chips that power artificial intelligence. We would not be in the golden age of AI without TSM.
- Nvidia (NVDA) and AMD (AMD) stocks are running up on a renewed AI frenzy. AI chips from both companies are manufactured by TSM. TSM also manufactures the brain of iPhones. At this time, there is no other company in the world that can match the advanced manufacturing capabilities of TSM. TSM stock is not getting a premium because of the China risk.
- TSM just reported earnings. However, it is not the earnings that are driving the stock; it is the China risk.
- TSM has traded as high as $145 in January 2022. At that time, NVDA traded at $284.80. Now, NVDA is trading at $535 and TSM is trading at $102.
- TSM has underperformed due to the risk of a potential invasion of Taiwan by China. We have been sharing with you that prudent investors need to be aware of the China risk.
- The Taiwan presidential election will be held on January 13.
- China has threatened to invade Taiwan if the pro-independence candidate Lai Ching-te of the Democratic Progressive party is elected.
- Lai Ching-te is leading in the polls by 3% – 10%.
- Taiwan’s elections are regarded as the most free in the world. China is attempting to influence the outcome.
- If China invades Taiwan, it will be a huge negative for the stock market.
- In the early trade, the U.S. stock market is consolidating, waiting for CPI data tomorrow.
- 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.
Japan
Nikkei in Japan went up 2% on speculation that the Bank of Japan will maintain its easy monetary policy longer as inflation cools in Japan. As we have been sharing with you, Bank of Japan policies can have a significant impact on the U.S. stock market.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Nvidia (NVDA).
In the early trade, money flows are neutral in Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT), Meta (META), and Tesla (TSLA).
In the early trade, money flows are negative in Apple (AAPL).
In the early trade, money flows are negative in S&P 500 ETF (SPY) and mixed in 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.
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
Iran based Houthis in Yemen have fired more missiles at ships in the Red Sea. This is causing a run up in oil.
API crude inventories came at a draw of 5.215M barrels vs. a consensus of a draw of 1.2M 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) ran up to $48,000 yesterday evening after a hacker got control of the SEC’s X account and posted a false tweet that bitcoin ETFs were approved. Bitcoin fell back to about $45,000 when SEC denied that bitcoin ETFs were approved.
The consensus in the market is that bitcoin ETFs will be approved today. However, prudent investors should note that there is significant risk to the downside if the ETFs are not approved.
Most importantly, professional investors are hedging their bitcoin positions to protect against a sell the news reaction but retail investors continue to buy bitcoin without hedging.
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 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.
Gold futures are at $2035, silver futures are at $23.05, and oil futures are at $73.24.
S&P 500 futures are trading at 4791 as of this writing. S&P 500 futures resistance levels are 4826, 4852, and 4918: support levels are 4770, 4713, and 4600.
DJIA futures are down 12 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.
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 seven 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.
To take a free 30-day trial to paid services to gain access to more opportunities, please click here.
This post was just published on ZYX Buy Change Alert.
Markets can generate substantial wealth for knowledgeable investors. NOW YOU TOO CAN ALSO SPECTACULARLY SUCCEED AT MEETING YOUR GOALS WITH THE HELP OF THE ARORA REPORT. You are receiving less than 2% of the content from our paid services. …TO RECEIVE REMAINING 98% INCLUDING MANY ATTRACTIVE INVESTMENT OPPORTUNITIES, TAKE A FREE
TRIAL TO PAID SERVICES.
Please click here to take advantage of a FREE 30 day trial.
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.
