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.’

SURPRISE RESULTED IN THIS MARKET MECHANIC CAUSING A SELL-OFF BEFORE TRADITIONAL SANTA CLAUS RALLY

December 21, 2023

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

Market Mechanics Surprise

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 a sell-off yesterday.
• The chart shows the sell-off brought the stock market below the low band of the resistance zone.
• The chart shows that this morning the stock market is rallying again in the early trade and is back to the low band of the resistance zone.
• The chart shows that RSI was very overbought, and thus the stock market was vulnerable to a sell-off when a surprise occurred in market mechanics.
• As we have been sharing with you, several market mechanics have been driving the stock market up.  One of those market mechanics is 0DTE options.  Every day traders have been aggressively buying 0DTE calls.  Every day when the market started going up, market makers were forced to buy stocks to hedge the calls they had sold.
• During the rally, market makers were more than happy to sell puts to investors as every day puts expired worthless, resulting in market makers making huge profits.  As the rally continued, market makers stopped hedging the puts they were selling.  After all, there was no point in hedging because the stock market went up every day.
• In yesterday’s Afternoon Capsule, we shared with you that the Treasury auction was weak.
• The weak Treasury auction caused the stock market to turn down.  Market makers were caught flat footed as they had sold lots of puts without hedging.  As the market went down, market makers were forced to sell stocks to hedge the puts they had sold.
• The result of the surprise encountered by market makers was they were forced to sell stocks to hedge, causing the biggest sell-off since September.
• The sell-off came just before the traditional Santa Claus rally.
• Traditionally, the Santa Claus rally starts tomorrow.
• The sell-off yesterday illustrates why it is so important for all investors to deeply understand market mechanics.  Due to their very high value, Wall Street professionals keep the secrets of market mechanics close to the chest, making it difficult for most investors to understand market mechanics even when they try.  To help you, we have made it easy for you to know, understand, and apply Wall Street’s best kept secrets.  There are several podcasts in Arora Ambassador Club.  You can join the exclusive Arora Ambassador Club by invitation only.
• We have been receiving a large number of questions from our very smart members trying to figure out what caused Powell’s flip that resulted in a massive stock market rally.  After all, Powell and the Fed had the same data two weeks before the flip when they were very hawkish.  We had previously shared with you that on the surface the answer was in the dot plot.  Our members are asking what was the real reason behind the switch in the dot plot.  When you connect the data points, the real reason becomes clear.  Please listen to the podcast titled “Protect Yourself: The Dirty Secret Of The President And The Fed” to understand the real reason behind Powell’s flip.
• 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.

Jobless Claims

Weekly Initial Claims came at 205K vs. 218K 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.

This indicates that the jobs picture is very strong. More importantly, this data does not support the consensus in the market of six rate cuts next year.

GDP

Q3 GDP-third estimate came at 4.9% vs. 5.2% consensus. This indicates that the economy is strong even though the data is somewhat weaker than the consensus.  Keep in mind that this is a lagging indicator.  The Arora Report system focuses on leading indicators.

Magnificent Seven Money Flows

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

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

Bitcoin (BTC.USD) is seeing buying on the hopes that whales will take advantage of the low liquidity over the weekend and run up bitcoin.

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 $2054, silver futures are at $24.56, and oil futures are at $72.91.

S&P 500 futures are trading at 4784 as of this writing.  S&P 500 futures resistance levels are 4826, 4918, and 5020: support levels are 4713, 4600, and 4460.

DJIA futures are up 208 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.

FEDEX TEMPERS STOCK BUYING FRENZY BUT MARKET MECHANICS STILL IN CONTROL

December 20, 2023

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

Stock Buying Tempered

Please click here for a chart of FedEx stocks (FDX).

Note the following:

• The Morning Capsule is about the big picture, not an individual stock.  The chart of FDX is being used to illustrate the point.
• FedEx is known as the bellwether of the economy.
• The chart shows a big fall in FDX stock after it reported earnings.
• The chart shows that prior to the earnings release, there was heavy volume with a slight drop in the stock.  From a technical analysis point of view, this was a great indication that the stock might fall after earnings.  This is a case where simply paying attention to volume would have worked.
• Most important for the macro picture is that revenues at FedEx fell.
  • FedEx’s overall revenue fell 2.8%.
  • Revenue in freight fell 3.8%.
  • Revenue in express fell 5.6%.
• FedEx CEO Raj Subramaniam blamed a weak economic backdrop as well as “significant demand disruption” as reasons for declining revenues.  
• We had previously shared with you that when the stock market is this overbought, something unforeseen always comes along to at least temper enthusiasm and often causes selling.
• In a normal overbought market, poor FedEx revenues would have caused a major drop in the overall stock market in the early trade.  However,  that is not the case today; there is only a slight drop in the early trade.  The reason is that the stock market continues to be in the grip of market mechanics pushing the stock market to the upside.
• We wrote in yesterday’s Afternoon Capsule,

Note the difference in the VUD indicator today compared to yesterday.  Yesterday the VUD indicator was solid green.  The difference in the VUD indicator indicates that market mechanics are beginning to become less strong.

• Give it to the momo gurus – they are excellent at their job of running up the stock market in the disguise of analysis.  Momo gurus have a narrative to persuade the masses to buy stocks and ignore the implications of FedEx earnings.  Their new narrative is that FedEx earnings are not as bad as they could have been and that is a reason to buy stocks.  All you have to do is look at the FedEx chart and see how the stock had run up going into earnings – you can quickly assess for yourself that the new narrative is bogus.  If analysts were expecting bad earnings from FedEx, the stock would not have run up going into earnings like it did.
• 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.

China Threat

Chinese President Xi reportedly told Biden that China will reunite Taiwan.  Right now, the stock market is oblivious to the Taiwan issue.  

United Kingdom

There is encouraging news on inflation from the U.K.  CPI came at -0.2% vs. 0.2% consensus month-over-month.  CPI came at 3.9% vs. 4.6% consensus year-over-year.

Germany

There is also encouraging news on inflation from Germany.  PPI came at -0.5% vs. -0.2% consensus month-over-month.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Alphabet (GOOG).

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

In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), 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 *** (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 build of 0.939M barrels vs. a consensus of a draw of 2.233M 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 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 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 $2046, silver futures are at $24.36, and oil futures are at $74.86.

S&P 500 futures are trading at 4812 as of this writing.  S&P 500 futures resistance levels are 4826, 4918, and 5020: support levels are 4770, 4713, and 4600.

DJIA futures are down 61 points.

LOOK AHEAD — PREPARE FOR MARKET MECHANICS THAT ARE DRIVING THE STOCK MARKET HIGHER TO END

December 19, 2023

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

Look Ahead

Please click here for a chart of semiconductor ETF SMH.

Note the following:

• Semiconductors are the leading sector.  Advances in semiconductors are also at the core of the artificial intelligence revolution.  Therefore prudent investors always pay attention to semiconductors.
• The chart shows a decisive up move in semiconductors after the breakout.
• RSI on the chart shows semiconductors are very overbought.  Overbought markets tend to be vulnerable to the downside.
• Market mechanics are very powerful and have been the primary force driving the stock market higher.  The chart of semiconductors illustrates the sharp move up since the end of October.  The easiest way to learn about market mechanics is to listen to the podcasts in Arora Ambassador Club.  Due to their high value, Wall Street professionals keep market mechanics secret.  There is very little credible and useful information available publicly.
• Market mechanics that have been driving the stock market higher are going to end no later than December 29, 2023.
• The smartest of smart money recognizes that these market mechanics are going to end, so they start acting before the market mechanics end.  Momo crowd is always oblivious, and the smartest of smart money simply takes advantage of the momo crowd.
• New market mechanics will start on January 2, 2024.
• Here are some of the steps that may need to be taken prior to the end of the year or immediately after the new year starts.
  • Raising hedges
  • Raising cash
  • Taking profits on tactical positions
• This is simply a heads-up.  We will provide more guidance as more data becomes available.
• In The Arora Report analysis, the start of the new year will likely be the same as every other new year after a strong year for the stock market — if the stock market starts going down, everyone will jump on the selling bandwagon; if the stock market starts going up, everyone will buy.  If the stock market starts going down, there will be additional selling pressure from selling by those who want to sell stocks but are postponing the selling to 2024 for tax reasons.
• 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.

Strong Housing Starts

Housing starts are very strong.  Housing starts came at 1.56M vs. 1.36M consensus.

Building permits came at 1.46M vs. 1.46M consensus.

Magnificent Seven Money Flows

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

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

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 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 $2044, silver futures are at $24.24, and oil futures are at $72.82.

S&P 500 futures are trading at 4802 as of this writing.  S&P 500 futures resistance levels are

DJIA futures are up 64 points.

DO NOT FALL IN THE CLASSIC TRAP — STOCK MARKET EUPHORIA CONTINUES IN SPITE OF PUSHBACK BY FED OFFICIALS

December 18, 2023

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

Stock Market Euphoria

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 market has slightly pulled back after penetrating the resistance zone.  The fact that so far the pullback is slight is a positive.
• The chart shows that pullback was on heavier volume.  In traditional analysis, this is a negative.  In The Arora Report analysis, this time it is not a negative because the heavier volume was due to quadruple witching.
• The RSI pattern shown on the chart is a positive.  When analyzing RSI, it is important to look at different time frames.  Even though the overall pattern is positive, there is a negative divergence and RSI is overbought.  At this time, this is to be interpreted as a pullback that can easily happen but the pullback should be bought.
• Friday was quadruple witching.  Based on the quadruple witching, today should be a pullback based on history.  However, this time offsetting any pullback are strong market mechanics to the upside.
• Market mechanics continue to be solidly to the upside.
• The sentiment remains extremely positive this morning.  As we have written before, when sentiment becomes extremely positive, it is a contrary signal.  In plain English, extremely positive sentiment is a sell signal.  However here are the key points:
  • Sentiment is not a precise indicator.
  • Sentiment can stay at extreme for weeks before a sell off occurs.
  • Often the sentiment sell signal is negated by sentiment moving to very positive for a few days and then moving back to extreme positive.
  • As important as sentiment is, it is one of the many indicators.  Investors should rely on a comprehensive 360 degree analysis provided by the adaptive ZYX Allocation Model with inputs in 10 categories.  Please click here to see the 10 categories.  In plain English, adaptive means the model changes itself automatically with market conditions.  This model contrasts itself with most models on Wall Street that are static.  Static models work for a while and then stop working when market conditions change.
• Euphoria in the stock market from Powell flip continues even though several Fed officials are pushing back.
  • Atlanta Fed President Raphael Bostic said he does not see rate cuts until the third quarter.
  • Chicago Fed President Austin Goolsbee said that considering rate cuts until inflation is on a path to a 2% target is an overstatement.
  • We previously shared with you that New York Fed President John Williams said that it is too early to think of rate cuts.
• Will the market listen to the pushback from Fed officials?  Probably not, because market mechanics are too strong to the upside.  Understanding market mechanics can give you a big edge.  The easiest way to understand market mechanics is to listen to the podcast in the Arora Ambassador Club.
• Thank you for your great questions regarding 2024 targets by Wall Street strategists and their calls to buy certain sectors.  At this time of the year, many investors fall into the trap created by Wall Street forecasts.  Consider not falling into this trap.  The podcast titled “The Classic Mistake Of The New Year Projections Trap” is in post production.  The podcast is in the Arora Ambassador Club.
  • As important as it is to make good investments, it is equally important to not make mistakes.  Mistakes can be very expensive.
• 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 Tesla (TSLA), Nvidia (NVDA), Amazon (AMZN), and Meta (META).

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

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

In the early trade, money flows are positive in S&P 500 ETF (SPY) and 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

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.  There is disappointment that whales did not run it up over the weekend taking advantage of low liquidity.

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 and bonds are range bound.

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 $2039, silver futures are at $24.18, and oil futures are at $73.42.

S&P 500 futures are trading at 4780 as of this writing.  S&P 500 futures resistance levels are 4826, 4918, and 5020: support levels are 4770, 4713, and 4600.

DJIA futures are up 44 points.

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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.