By Nigam Arora
To gain an edge, this is what you need to know today.
Europe Debt Concerns
Please click here for a chart of Brazil ETF (EWZ).
Note the following:
- The chart shows EWZ leaped above zone 1 on election results.
- RSI on the chart shows EWZ is overbought. An overbought ETF is susceptible to a pullback.
- Brazil matters to U.S. investors because it is Latin America’s largest economy and a major supplier of oil, iron ore, soybeans, and critical minerals. Its economic policies are connected to global commodity prices, U.S. inflation, and corporate profit margins.
- Brazilian stocks are surging as investors price in a greater chance of spending cuts, privatizations, and lower taxes following Flávio Bolsonaro’s stronger than expected election performance. Bolsonaro, the candidate of the right wing Liberal Party, received approximately 47% of the vote against President Lula’s 45%, setting up an October 25 runoff with the presidency still undecided.
- Flávio Bolsonaro’s father Jair Bolsonaro was previously president of Brazil and very close to President Trump. Jair Bolsonaro is now in jail.
- In The Arora Report analysis, if Bolsonaro wins the runoff election, Brazil will likely again be closer to the U.S. If Bolsonaro wins, it will be good for U.S. strategic interests and a negative for China.
- Under Lula, Brazil has deepened ties with China, its largest trading partner, and disagreements with the U.S. over trade and security have widened. Brazil also belongs to BRICS, the group that includes Russia, India, and China. BRICS promote greater use of local currencies in trade to reduce dependence on the U.S. dollar.
- Brazil ETF EWZ is in ZYX Emerging Model Portfolio. The Arora Report has continuously followed Brazil for 19 years.
- Brazil has enormous potential but has repeatedly undermined it through poor economic management. In The Arora Report analysis, if Brazil gets its policies right, Brazilian stocks and Brazil ETF EWZ can go much higher.
- Persistent budget deficits have contributed to high borrowing costs, while political interference in companies such as Petrobras (PBR) has damaged investor confidence under governments of both the left and the right.
- Credible spending discipline and predictable business policies could create room for lower interest rates and stronger corporate earnings.
- Further in The Arora Report analysis, EWZ can benefit from rising earnings and higher valuations, with a stronger Brazilian real potentially adding to returns in dollars, provided Brazil follows through with lasting reforms.
- Concerns are mounting for France’s debt. Earlier today, yields on French 10 year bonds were 146 bps above German 10 year bonds. This is the highest yield difference since the 2011 Europe debt crisis. The euro is slumping. The euro is the largest component of the dollar index. As a result, the dollar is rising. Prudent investors should keep a careful eye on French debt as it has the potential to quickly mushroom and impact markets in the U.S.
- There is also an unconfirmed report of plague spreading in Russia. It is nothing to be concerned about at this time, but it is worth keeping an eye on. You may recall that The Arora Report was one of the first, if not the first, in 2020 to warn that the stock market would fall because of COVID.
- Iran is saying that it will close the Strait of Hormuz until the U.S. meets its conditions. Iran also appears to have increased the tax on ships. So far in the early trade, both the oil and stock markets are ignoring Iran developments.
- ISM Non-Manufacturing Index will be released at 10am ET and may be market moving.
- FOMC minutes will be released on Wednesday.
- Earnings season starts this week with Delta Air Lines (DAL) reporting on Friday and more reporting next week. The stock market is expecting very strong earnings. In The Arora Report analysis, the probability is high that earnings will be strong. Having said that, there is significant downside to the stock market if earnings do not measure up.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Nvidia (NVDA) and Microsoft (MSFT).
In the early trade, money flows are neutral in Amazon (AMZN).
In the early trade, money flows are negative in Apple (AAPL), Alphabet (GOOG), Meta (META), and Tesla (TSLA).
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 *** in the early trade.
Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary 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.
Gold
The momo crowd is *** in gold in the early trade. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). 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
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.
S&P 500 futures are trading at 7772 as of this writing. S&P 500 futures resistance levels are 7795, 7831, and 7900 : support levels are 7733, 7626, and 7541.
DJIA futures are down 48 points.
Gold futures are at $4180, silver futures are at $61.90, and oil futures are at $89.33.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora Protection Band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash, Treasury bills, short term fixed income, 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.
A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.
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.
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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.
