Raise Cash And Hedges

Cash and hedges are being raised.  Scroll down to the “Protection Band And What To Do Now” section below.

Be forewarned that this decision may need to be quickly reversed depending upon the upcoming inflation data and earnings. If the inflation data comes out better than expected and earnings start coming out better than expected, the market mechanic of year end chase will take over.  This market mechanic has the potential to run up the stock market by as much as 10% – 15%.  You gain an edge when you understand market mechanics.  For those interested in next-level information, listen to the podcast titled “Market Mechanics: Gain An Edge From Year End Chase.” The podcast is available in Arora Ambassador Club.

Jobs Report

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 fallen below the low band of the top support zone.
• The chart shows that the stock market is now approaching the 200 day moving average.  There is nothing special about the 200 day moving average.  Why not 180 days or 220 days?  However, a legion of people believe in the power of the 200 day moving average, and this average has power because of the blind belief.  Expect bulls to make the case that the 200 day moving average is going to act as support and the stock market is going to bounce from here.  Expect bears to make the case the stock market is going to break the 200 day moving average and go lower.
• The chart shows the support zone.  The stock market can go to the support zone only if the Fed speak is negative and there are rumors about CPI and PPI next week.
  • PPI will be released on October 11.
  • CPI will be released on October 12.
• The jobs report is extremely strong with the exception of average hourly earnings.  Here are the details:
  • Non-farm payrolls came at 336K vs. 158K consensus.
  • Non-farm private payrolls came at 263K vs. 150K consensus.
  • Unemployment rate came at 3.8% vs. 3.7% consensus.
  • Average work week came at 34.4 vs. 34.4 consensus.
  • Average hourly earnings came at 0.2% vs. 0.3% consensus.
• Investors should note that an increase of 0.2% in average hourly earnings translates to an 2.4% average annual raise.  This is at a time when unions are demanding very large raises.  The data shows that workers outside of unions are getting raises on the order of about 2%.  
• Yesterday, some momo gurus were predicting a 1000 point DJIA rally.  In yesterday’s Afternoon Capsule, we wrote:

Start with Arora’s second law:  Nobody knows with certainty what is going to happen next in the markets.  Momo gurus do not have any special knowledge or information.  They are simply doing their job of getting their followers excited to buy stocks.

• What are momo gurus going to do now that they were so wrong? Momo gurus are often wrong, so this is nothing new.  They still insist on claiming to know that they know what is going to happen next.  Even though their gurus are wrong most of the time, the momo crowd continues to follow them.  None of this is going to change.  Expect momo gurus to come up with a new narrative around an annualized wage increase of 2.4% to try to run up the stock market.
• Exxon (XOM) is rumored to be in advanced talks to buy PXD for $60B. Such a large buyout has the potential to generate excitement in the stock market and run several oil stocks up.
• 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

In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Apple (AAPL).  Money flows are very negative in Tesla (TSLA).  Tesla is cutting prices again.

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 *** 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 *** 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 range bound.

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 $1831, silver futures are at $21.25, and oil futures are at $82.26.

S&P 500 futures are trading at 4256 as of this writing.  S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4200, 4000, and 3950.

DJIA futures are down 72 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 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.

Biden’s Security Plan

Please click here for a chart of oil futures (CL_F).

Note the following:

• The chart shows a big run up in oil.  When oil crossed over $90, $100 oil became the consensus in the marketplace.
• As the chart shows, the $100 consensus caused a short squeeze.
• As the chart shows, Biden’s security plan for the Middle East started gaining traction, causing the biggest fall in oil in a year.  Biden’s security plan calls for Saudi Arabia to normalize relations with Israel in return for a security pact with the U.S. and other major concessions from the U.S.  The presumption is that the result will be Saudi Arabia increasing oil production to help lower oil prices.  Considering the presidential election is next year, lowering oil prices with Saudi cooperation is high on Biden’s agenda.
• In The Arora Report analysis, lower oil prices are a positive for the stock market with the exception of oil stocks.  The reason is that lower oil prices mean lower inflation.
• In The Arora Report analysis, Middle East politics is very volatile and there does not seem to be enough support in the U.S. Congress to support the security pact with Saudi Arabia at this time.  For these reasons, the fall in oil prices could turn out to be temporary.
• Weekly initial jobless claims came at 207K vs. 225K consensus. This indicates that the job picture continues to stay very strong.  This strong data caused an immediate uptick in yields and turned money flows in the Magnificent Seven stocks lower.  This is important because the stock market is being held up due to the strength in the Magnificent Seven stocks based on AI frenzy.
• The next major data release is the jobs report.  The jobs report will be released at 8:30am ET on October 6. The consensus for non-farm private payrolls is 150K.  The consensus for the headline is 158K.
• 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.

Weight Loss Drugs

Walmart (WMT) says that people on weight loss drugs are buying slightly less food.  The consensus is beginning to develop that weight loss drugs from Eli Lilly (LLY) and Novo Nordisk (NVO) are negative for many med-tech stocks, restaurant stocks, alcohol stocks, and food and beverage stocks.  If these predictions start coming true, money will rush out of these stocks and will likely go into artificial intelligence stocks.  There is a fortune to be made in artificial intelligence over the next seven years, but it will be treacherous at times.  Investors who develop in-depth knowledge of investing in artificial intelligence will do better compared to those who do not.  The easiest way to develop your knowledge about investing in artificial intelligence is to listen to the podcasts in Arora Ambassador Club.

Magnificent Seven Money Flows

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

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

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 *** 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

Bitcoin (BTC.USD) is range bound.

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 range bound.

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 $1833, silver futures are at $21.20, and oil futures are at $83.85.

S&P 500 futures are trading at 4284  as of this writing.  S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4200, 4000, and 3950.

DJIA futures are down 77 points.

Major Buying Opportunity Ahead

Please click here for a chart of 20+ Year Treasury Bond ETF (TLT).

Note the following:

• The chart shows that The Arora Report call that was made on August 2 was very timely and spot on.
• The chart shows the dramatic drop in TLT.
• The chart shows that the volume on the drop yesterday was a record.  In The Arora Report analysis, this is one indication of potential capitulation. In general, it pays to buy when a capitulation occurs.  However, this is only one of the several important capitulation indicators.  For those wanting next-level information, listen to the podcast in Arora Ambassador Club titled “The Ten Secrets Of Epic Capitulation Riches.”
• RSI on the chart shows that TLT is oversold and beginning to bounce.  This indicates that if the macro data is favorable, TLT can move up quickly.
• In The Arora Report analysis, the short interest in bonds right now is likely the highest ever.  Assuming our analysis is correct, if favorable macro data is released, TLT can experience a major short squeeze and run up.  
• In The Arora Report analysis, all of the foregoing is only short term.  For the long term, The Arora Report has a negative view of bonds due to high debt levels, high deficits, and persistent inflation. 
• Weak ADP data this morning is lifting bonds, and in turn, stocks.  ADP is the largest private payroll processor in the country.  It uses its data to give a glimpse of the jobs picture ahead of the official jobs report that will be released on Friday.  ADP employment change came at 89K vs. 150K consensus.
• There are three pieces of data ahead that can dramatically move TLT, and in turn, the stock market.
  • ISM Non-Manufacturing Index will be released today at 10am ET.   The consensus is 53.7.
  • Initial claims will be released at 8:30am ET on October 5.  The consensus is 225K.
  • The jobs report will be released at 8:30am ET on October 6. The consensus for non-farm private payrolls is 150K.  The consensus for the headline is 158K.
• If the economic data is such that the bonds turn up, the market mechanic of year end chase will start kicking in.  If this market mechanic turns out to be to the upside, expect a major rally and a buying opportunity in the stock market.  There are never any guarantees.  For this reason, it is important to stay in tune with the new data as it comes in. Understanding market mechanics can give you a big edge.  For example, about two thirds of the market rise this year is due to market mechanics.   For those who want next-level information, a podcast titled “Market Mechanics: Gain An Edge From Year End Chase ” will go live in Arora Ambassador Club today.
• 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

In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), and Tesla (TSLA).

In the early trade, money flows are negative in Apple (AAPL) and Meta (META),

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 *** 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

OPEC+ left production unchanged.

API crude inventories came at a draw of 4.210M barrels vs. a consensus of a draw of 0.092M 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 range bound.

Markets

Our very, very short-term early stock market ***.  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 $1843, silver futures are at $21.51, and oil futures are at $87.54.

S&P 500 futures are trading at 4274 as of this writing.  S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4200, 4000, and 3950.

DJIA futures are up 34 points.

Three Classic Mistakes

Please click here for a chart of NextEra Energy Partners (NEP).

Note the following:

• The Morning Capsule is about the big picture.  The chart of NEP is being used to illustrate the point.
• NEP is a publicly traded limited partnership that owns interest in wind and solar projects, and natural gas infrastructure.
• NEP was formed by NextEra Energy (NEE).  The largest asset of NEE is FPL which is a regulated utility that serves nearly half of Florida and is the third largest electric utility in the country.
• Both NEE and NEP have been aggressively promoted to investors by Wall Street and newsletters.
• Both NEE and NEP have been favorite investments of the dividend chasing crowd.  Many  individual investors have a large proportion of their portfolios in these stocks based on the pump on social media and other sites where the dividend chasing crowd congregates.
• The anecdotal evidence is that many such investors did not even read Wall Street’s analysis.
• There is also anecdotal evidence that many such investors do not even have rudimentary risk control.
• The chart shows that NEP has fallen from a 52 week high of $81.32 to $24.50.
• The chart shows that the drop in the stock from the high to about $48 is the first leg.  This is due to rising interest rates.
• The chart shows that there is a second leg showing the stock falling from about $48 to $24.50 in four trading days.
• The second down leg occurred because NEP lowered its dividend growth rate due to higher interest rates making it unable to accretively add drop-downs from its parent NEE.
• The stock of the parent NEE has also fallen from the high of almost $90 to about $51.
• Why were investors buying NEP and NEE?  They were chasing yields without understanding the business, the financials, and the impact of interest rates.  The last dividend provided them with a 5.8% yield on NEP and 2.51% on NEE.
• NEE and NEP are not the only stocks.  The dividend chasing crowd is getting burned in many stocks.
• Prudent investors need to make sure they are staying clear of the following mistakes that the dividend chasing crowd has been making. 
  • The crowd gets very focused on the dividends without understanding the risks.  It is important to pay attention to one of the Arora Principles: give precedence to return of capital over return on capital.  This principle becomes especially important when the upside rewards are minimal but downside risks are great.  How does a 5% dividend help when trying to get this dividend, an investor loses 72% of the value?  The dividend chasing crowd has an answer that they believe in religiously.  The answer is that the value of their portfolio does not matter; it is only the income that matters.  As foolish as this kind of thinking is, it gets even worse for the dividend chasing crowd because ultimately dividends get cut.
  • The second classic mistake is this crowd does not keep up with the changing macro environment.  The easiest and most time efficient way to keep up with the macro environment is to regularly read the Morning Capsules.
  • The third classic mistake this crowd makes is that for information, they rely on those who have an agenda without understanding that their information sources are not objective.  The vast majority of this crowd does not subscribe to an objective resource such as The Arora Report.
• The momo crowd was running up stock futures earlier today until yields started rising again and smart money started selling. As of this writing, smart money selling has overwhelmed momo crowd buying.
• It is important to note that smart money holds large equity positions.  Smart money is not selling wholesale, but rather trimming at the edges.
• JOLTS-Job Openings report will be released at 10am ET and may be market moving.
• 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

In the early trade, money flows are positive in Nvidia (NVDA).

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

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 *** 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 *** in the early trade.

For longer-term, please see oil ratings.

Bitcoin

The pattern of bitcoin (BTC.USD) is that whales run it up, often squeezing short sellers.  As bitcoin runs up, retail investors get excited and buy at higher prices.  It seems that whales take advantage of the strength and sell into it.  Bitcoin is pulling back from the rise on short squeeze and retail buying.

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 $1840, silver futures are at $21.22, and oil futures are at $88.83.

S&P 500 futures are trading at 4297  as of this writing.  S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4200, 4000, and 3950.

DJIA futures are down 165 points.

Volatility Ahead

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 government shutdown is averted for now.  The can has been kicked down the road until November 17.
• Sunday evening, when futures opened, the momo crowd bought aggressively on the government not shutting down.  However, as of this writing, futures have not only given up their gains but have turned negative.
• The chart shows the stock market is in the top support zone.  In The Arora Report analysis, the stock market is waiting for a trigger to move out of the top support zone.
• In The Arora Report analysis, October is likely to test the enthusiasm for AI stocks.
• October is historically the most volatile month of the year.  Stock market crashes tend to happen in October.  Often, October lays the groundwork for the market mechanic for year end chase to drive the stock market higher in November and December.  However, keep in mind that in some years like 2022, the chase is to the downside.  When investors develop in-depth knowledge of market mechanics, it gives them an edge.  About two thirds of the market rise this year has been due to market mechanics.  For those wanting next-level information, a podcast titled “Market Mechanics: Gain An Edge From Year End Chase” is in post-production. The podcast will be available in Arora Ambassador Club.
• The year end chase being to the upside or to the downside this year will largely depend on the following:
  • Upcoming earnings
  • Momentum in AI stocks
  • New economic data
  • Interest rates
  • November FOMC meeting
• RSI on the chart shows that the stock market remains oversold. Oversold markets tend to bounce.
• ISM Manufacturing Index is to be released at 10am ET.  The consensus is 47.8%.  If the actual number released is far from the consensus, it will move the stock market.
• Jamie Dimon, CEO of JP Morgan (JPM) , is speaking at 10am ET.  In The Arora Report analysis, Dimon’s speech is important.  As the head of the largest U.S. bank, he has great visibility into the state of the economy.  Dimon recently warned about higher interest rates and lower bonds.  His warning was in line with one of The Arora Report scenarios but not in line with the consensus in the stock market. Prudent investors should carefully watch to see what he says about interest rates.
• Fed speak is ahead and may be market moving:
  • Powell and Harker are participating in a roundtable at 11am ET.
  • Mester is speaking at 7:30pm ET.
• Today is the beginning of the fourth quarter.  Blind money flows into Wall Street on the first two days of the quarter without any analysis and irrespective of market conditions.  Most of blind money is invested in the afternoon.
• Wall Street front runs the blind money by buying certain stocks in the morning and then selling them to blind money in the afternoon at a profit.  Of course, blind money is oblivious because they do not care what price they pay.
• 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

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

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

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 *** 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

Bitcoin (BTC.USD) is surging on a short squeeze.  Many investors were buying bitcoin on the prospect of a government shutdown.   When a deal was struck in the house to keep the government open, short sellers jumped in hoping that bitcoin would fall.  This is when the whales apparently decided to squeeze the shorts, causing a major run-up.  Bitcoin has now moved over $28,000.  

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 $1851, silver futures are at $21.77, and oil futures are at $90.77.

S&P 500 futures are trading at 4317 as of this writing.  S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4200, 4000, and 3950.

DJIA futures are down 97 points.