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

Sentiment Is Important

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

Note the following:

  • The chart shows that sentiment has turned very positive.
  • Sentiment is important and all prudent investors should pay attention to it.
  • When sentiment turns very positive, not only momo crowd becomes more aggressive, the FOMO (fear of missing out) crowd jumps in.
  • The most important use of sentiment is that it is a contrary indicator at the extremes.  In plain English, this means that when sentiment turns extremely positive, it is a sell signal.
  • The reason that using sentiment as a contrary indicator often works is that when sentiment turns extremely positive, almost everyone who is going to buy in the very short term has already bought it.  In such a situation, the slightest bit of selling can send stocks lower because there is no one left to buy.
  • The publicly available sentiment indicators are highly flawed. For this reason, a very long time ago, The Arora Report developed its own proprietary sentiment indicator.
  • One of the publicly available sentiment indicators is AAII sentiment survey.  This indicator rose by 17.9% to 55.8% in the latest reading.  As a reference, the indicator was 59.8% on January 3, 2018, which was extreme positive sentiment.
  • The chart shows that the momo crowd continues to buy.
  • The chart shows that RSI is overbought but has room to run.

Inflation

Core Producer Price Index (PPI) came at 0.1% vs. 0.2% consensus.  This indicates that after several hot readings, inflation is now cooling at the producer level.

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 🔒.

Gold

The momo crowd is 🔒 gold in the early trade. Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

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

For longer-term, please see oil ratings.

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 $,1873 silver futures are at $24.80, and oil futures are $40.48.

S&P 500 futures resistance levels are 3600  and 3630: support levels are 3520, 3460 and 3420.

DJIA futures are up 205 points.

Protection Bands and What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

Consider maintaining prior cash and hedge levels until dips.

Consider continuing to hold existing positions. Based on individual risk preference, on dips, consider holding 🔒 in cash or treasury bills or short-term bond funds 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, 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.

 

This post was just published on ZYX Buy Change Alert.

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