By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
New Data
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 that the stock market is consolidating right around the low band of the resistance zone.
- The chart shows the Arora signal to take profits on tactical positions.
- Consider continuing to take profits on tactical positions by scaling out. New members, see Trade Management Guidelines to learn how to scale out.
- The chart shows that Arora buy signals from early November have been highly profitable.
- Two pieces of new data this morning go against the stock market’s consensus of immaculate everything – the landing, the Fed, interest rates, earnings, adoption of AI, Russia, China, and the Middle East.
- Weekly initial claims came at 202K vs. 220K consensus. This indicates that the jobs picture is stronger than the market consensus. Weekly initial claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions. Please click here to see how this is achieved. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.
- ADP is the largest private employer in the U.S. ADP uses its data to provide a glimpse of the employment picture ahead of the official jobs report that will be released on Friday at 8:30am ET. ADP employment change came at 164K vs. 114K consensus. This again indicates that the jobs picture is a lot stronger than the market consensus.
- You may recall that yesterday two pieces of economic data plus the FOMC minutes also came against the stock market consensus of immaculate everything. Please see yesterday’s Capsules for details.
- The next big test for the stock market will be tomorrow at 8:30am ET when the jobs report will be released. There is a reason that the jobs report is known as the mother of all reports.
- There is another Wall Street analyst downgrading Apple (AAPL). This downgrade took steam out of the budding rally in the tech stocks in the early trade.
- 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.
Tinderbox Gets Hotter
The Middle East tinderbox just got hotter. About 100 people died in a terror attack in Iran in a gathering remembering a top Iranian general killed by the U.S. In The Arora Report analysis, after this incident, the probability of the Middle East conflict widening has now gone up to 30%. The momo crowd is oblivious, but prudent investors should pay attention.
Germany
What happens to the stock market will ultimately come down to what happens to inflation. In Germany, CPI rose to 3.8% year-over-year in line with consensus. However, it is higher than the rise in November.
Magnificent Seven Money Flows
In the early trade, money flows are mixed in Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Tesla (TSLA).
In the early trade, money flows are negative in AAPL and Amazon (AMZN).
In the early trade, money flows are mixed 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.
Gold
The momo crowd is *** in gold in the early trade. Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
API crude inventories came at a draw of 7.418M barrels vs. a consensus of a draw of 2.967M 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 rising as rumors continue to swirl about spot bitcoin ETFs.
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 $2048, silver futures are at $23.12, and oil futures are at $73.35.
S&P 500 futures are trading at 4741 as of this writing. S&P 500 futures resistance levels are 4770, 4826, and 4852: support levels are 4713, 4600, and 4460.
DJIA futures are up 77 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.
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This post was just published on ZYX Buy Change Alert.
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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.
