By Nigam Arora & Dr. Natasha Arora

Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report. 

Please scroll down for the section ‘Protection Bands and What To Do Now.’

MOTHER OF ALL REPORTS GOES AGAINST THE STOCK MARKET’S CONSENSUS OF IMMACULATE EVERYTHING

January 5, 2024

To gain an edge, this is what you need to know today.

Mother Of All Reports

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 has pulled back below the bottom band of the resistance zone.
• The chart shows that the stock market is still hanging above the mini support zone.
• RSI on the chart shows that the stock market is oversold.  Oversold markets tend to bounce.

• The consensus in the stock market has been immaculate everything –  the landing, the Fed, interest rates, earnings, adoption of AI, Russia, China, and the Middle East.
• The jobs report, also known as the mother of all reports, has gone against the market consensus of immaculate everything.  The jobs picture is stronger than the consensus.  In The Arora Report analysis, this means that the market consensus of six rate cuts in 2024 and seven total rate cuts is not correct. Here are the details:
  • Non-farm private payrolls came at 164K vs. 132K consensus.
  • Non-farm payrolls came at 216K vs. 162K consensus.
  • Unemployment rate came at 3.7% vs. 3.8% consensus.
  • Average hourly earnings came at 0.4% vs. 0.3% consensus.
  • Average work week came at 34.3 vs. 34.4 consensus.
• After the release of the jobs report, stock futures initially fell but the momo crowd aggressively bought the dip.
• In 40 years, the stock market has not been down all first four days of a new year.  Stock market bulls’ expectations are that due to oversold conditions, they will be able to run up the stock market.  If stock market bulls do not succeed today, it will be a negative and may lead to changes in the protection band. 
• Consider continuing to take profits on tactical positions by scaling out. 
• 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.

Magnificent Seven Money Flows

Money flows were negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL) before the release of the jobs report, but they have turned positive after the release of the jobs report.

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

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 range bound.

Markets

Our very, very short-term early stock market indicator is ***.  Keep in mind that it is a Friday and short squeezes tend to occur on Fridays.  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 $2049, silver futures are at $23.29, and oil futures are at $73.43.

S&P 500 futures are trading at 4722 as of this writing.  S&P 500 futures resistance levels are 4770, 4826, and 4852: support levels are 4600, 4460, and 4400.

DJIA futures are down 51 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.

NEW DATA GOES AGAINST THE STOCK MARKET’S IMMACULATE EVERYTHING CONSENSUS, TINDERBOX GETS HOTTER

January 4, 2024

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.

STOCK MARKET CONSENSUS OF IMMACULATE EVERYTHING TO FACE NEW ECONOMIC DATA AND FED MINUTES, NEW BITCOIN RUMOR

January 3, 2024

To gain an edge, this is what you need to know today.

New Economic Data

Please click here for a chart of Nasdaq 100 ETF (QQQ).

Note the following:

• The chart shows tech stocks have fallen back into the support zone.
• RSI on the chart shows tech stocks are near oversold.
• The stock market has a consensus now that everything is going to be immaculate – the landing, the Fed, interest rates, earnings, adoption of AI, Russia, China, and the Middle East.
• The stock market is assuming a 90% probability of seven rate cuts.
• The stock market is going to face new economic data today:
  • ISM Manufacturing Index will be released at 10am ET.  The consensus is 47.1%.
  • JOLTS report will be released at 10am ET.
• The stock market will also face minutes from the last FOMC meeting at 2pm ET.  Powell was dovish in the press conference, flipping 180 degrees.  At The Arora Report, we will be reading the Fed minutes to see if the 180 degree flip was unanimous or if there was dissension.
• If the new data and the Fed minutes are supportive of immaculate everything, expect a rip roaring rally and new highs.
• If the data is not supportive of immaculate everything, expect momo gurus to come up with a new narrative to try to run up the stock market.
• Market mechanics are neutral as of this writing in the premarket but can easily swing in either direction after the data and Fed minutes.
• Richmond Fed President Tom Barkin has made two key points this morning:
  • Rate hikes are not off the table.
  • The soft landing is at risk.
• 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.
• There is selling in the early trade but money flows in indexes are positive.  See below.

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Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple (AAPL), Tesla (TSLA), and Amazon (AMZN).

In the early trade, money flows are neutral in Nvidia (NVDA) and Microsoft (MSFT).

In the early trade, money flows are negative in Alphabet (GOOG) and Meta (META).

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.

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

The momo crowd is *** oil in the early trade.  Smart money is *** in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Yesterday, we wrote:

There is a rumor that a bitcoin (BTC.USD) ETF will be approved as soon as tomorrow.  The rumor has driven bitcoin above the key level of $45,000. The SEC has until January 10 to make a decision on bitcoin ETFs.

This morning there is rumor that the SEC may reject spot bitcoin ETF.  Bitcoin fell as low as $40,968.  Buyers came in at the low, and bitcoin has since recovered to above $42,000.

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 $2051, silver futures are at $23.27, and oil futures are at $70.96.

S&P 500 futures are trading at 4769 as of this writing.  S&P 500 futures resistance levels are 4826, 4852, and 4918: support levels are 4713, 4600, and 4460.

DJIA futures are down 145 points.

OPPORTUNITIES AHEAD – AVOID CLASSIC NEW YEAR MISTAKE, CHINA AND IRAN THREATS, BITCOIN RUMOR

January 2, 2024

To gain an edge, this is what you need to know today.

Opportunities Ahead But Be Astute

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:

• Plenty of opportunities are ahead in 2024, but you need to be astute as to when to buy, what to buy, and how to buy if you want market beating returns.  
• The chart shows that during the Santa Claus rally, the stock market did not hit the top band of the resistance zone.  In the very short term, this is a negative.
• The chart shows the stock market has pulled back to the low band of the resistance zone.  To maintain bullish posture, the stock market needs to not go much below the bottom band of the resistance zone.
• There are likely many stops right below the bottom band of the resistance zone.  If the stock market starts dropping, hunt and destroy algorithms will go into action and take out the stops.  This is the reason that The Arora Report recommends not placing stops at obvious points.
• Historically, after the stops are taken out, there is a bounce.  Officially, the period for the Santa Claus rally will end at the close tomorrow.
• RSI shown on the chart is on a sell signal, but the pattern is such that it can quickly reverse to a buy signal.
• RSI on the chart shows negative divergence. In plain English, this means that RSI and the price are moving differently.  This is a negative in the very short term.
• In the early trade this morning, there is considerable tax related selling.  Historically, such selling is common after a strong year.  The reason is that investors did not want to sell in 2023 to avoid paying capital gains taxes for the 2023 tax year.  By selling now, they have successfully postponed paying capital gains tax by one year.
• As the year starts, investors are again making the classic mistake that we warned you about late last year.  The classic mistake investors make at this time of the year is to act on the following:
  • 2024 year end targets from Wall Street strategists
  • Sector recommendations from Wall Street strategists
• In our 40 years in the markets, a vast majority of the time, Wall Street strategists are wrong.  To understand the recent history, consider the following:
  • Right now, investors are worshiping permabulls and deriding permabears.
  • In 2023 at the start of the new year, investors were worshiping permabears and deriding permabulls.  What did the stock market do?  The stock market went up.
  • In 2022 at the start of the new year, investors were worshiping permabulls and deriding permabears.  What did the stock market do?  The stock market went down.
• In The Arora Report analysis, as important as it is to make good investments and trades, it is equally important to not make mistakes.  To help you, there is a podcast titled “The Classic Mistake Of The New Year Projections Trap” in the exclusive Arora Ambassador Club.  Thank you for all of the positive feedback on the podcast.
• As you start the new year, The Arora Report recommends that you neither be a permabull or a permabear.  Instead, start with Arora’s Second Law of Investing And Trading: “Nobody knows with certainty what is going to happen next in the markets.”  Consider flowing with the new data as it comes.
• It is important to understand the reason behind the investors’ behavior that leads to lower returns.  Investors suffer from recency bias – they expect the road ahead to be exactly the same as the road behind over the recent past.
• There are significant geopolitical developments on two fronts.  Please see the sections below on China and Iran.
• 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.
• There is no change in the protection band as of this writing, but expect changes as more data comes in.
• You do not want to buy at the top.  There are plenty of opportunities ahead in 2024.  Consider being patient.

Take Profits On Tactical Positions

This is a continuation of the call just before the close of 2023.  Consider continuing to take partial profits on tactical positions by scaling out.  Consider continuing to hold very long term strategic positions.  New members, consider reading the “Strategic Vs. Tactical,” “Strategy,” and “Tactics” sections of a prior Afternoon Capsule.

China Threatens To Invade

Elections in Taiwan are ahead.  China is threatening to invade if Taiwanese people vote for the pro-independence candidate.  If China decides to invade Taiwan and President Biden decides to defend Taiwan, there is a prospect of World War III.  In The Arora Report analysis, the probability of an invasion is low.  Nonetheless, you should not underestimate this risk.

Iran Sends Warship To Red Sea

The Red Sea is important because 12% of the world’s commerce moves through the Red Sea.  The U.S. sank three Houthi boats over the weekend.  The U.S. action came after Houthis attempted to sink a large commercial vessel that the U.S. had vowed to protect.  Houthis are based in Yemen and are backed by Iran.

In The Arora Report analysis, the probability is high that Iran will back off as Iran understands that it is no match for the U.S. naval power.  Having said that, prudent investors should keep an eye on the situation.  Oil is running up.  

Magnificent Seven Money Flows

In the early trade, money flows are positive in Tesla (TSLA).

In the early trade, money flows are negative in Apple (AAPL), Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), and Meta (META).

In the early trade, money flows are negative 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.

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

The momo crowd is *** oil in the early trade.  Smart money is *** oil in the early trade.

For longer-term, please see oil ratings.

Bitcoin

There is a rumor that a bitcoin (BTC.USD) ETF will be approved as soon as tomorrow.  The rumor has driven bitcoin above the key level of $45,000. The SEC has until January 10 to make a decision on 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 $2073, silver futures are at $24.13, and oil futures are at $72.82.

S&P 500 futures are trading at 4780 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 242 points.

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(To see the locked content, please take a 30 day free trial)

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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.