By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Not Mother Of Support Zones
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:
- ZYX Global Allocation Model is now showing a 60% probability of the stock market eventually hitting the lower support zone shown on the chart.
- Please click here to see the 10 categories of inputs into the model.
- ZYX Global Allocation Model is an adaptive model. In plain English, this means that the model changes itself in response to market conditions. Please click here for details. Most of the models used on Wall Street are static models. Static models tend to work for a while and then stop working when market conditions change. Due to its adaptiveness, ZYX Global Allocation Model has worked well in both bull and bear markets for a very long time.
- The lower support zone is marked as “NOT MOTHER OF SUPPORT ZONES” on the chart. The context is that when the stock market was falling out of bed at the beginning of the pandemic, The Arora Report provided investors with a chart showing “MOTHER OF SUPPORT ZONES.” The stock market fell to the top band of the mother of support zones and then bounced. Please click here for the chart of the mother of support zones and how it helped investors as the zone held.
- The implication is that in the analysis at The Arora Report, the probability was extremely high that the mother of support zones would hold, and this is why it was called the mother of support zones. Not mother of support zones means that it is a strong support zone but not a very strong support zone.
- Do not expect a straight line down.
- Expect many strong rallies.
- The reason the probability of the market eventually going lower has gone up is that the data shows that the probability of recession and/or stagflation has gone up.
- It is extremely important that investors increase their knowledge of stagflation now and get ahead of the curve.
- The stock market experienced a very strong rally on Friday. Bulls are expecting a follow-through rally and believe that the stock market low for the cycle is in. Bears contend that the rally that started Friday was simply a bear market rally.
- Investors should consider not getting locked into the bearish or bullish camp. Consider following Arora’s Third Law of Investing and Trading, “Making investing and trading decisions based on probabilities is the only realistic and profitable approach.”
- For the short term, advancing versus declining volume on Friday was about 90%, which is positive. On the negative side, as the chart shows, total volume was not high.
- For the short term, the chart shows that the market is now in the resistance/support zone. The market will have to decisively breakout of this zone for bulls to establish their case.
Ugly China Data
The economic data released in China last night was ugly.
- There is always a question about reliability of data from China.
- It stands to reason that the Chinese government would want the data to look better than it is and certainly would not manipulate the data to look worse than it is.
- Retail sales fell 11.1% versus a consensus of a fall of 6.6%.
- Industrial production came at -2.9% versus +0.5% consensus. This is the worse data since 1990.
- Jobless rate came at 6.1% versus 6.0% consensus. This is the highest rate since February 2020.
- Property investment saw its first decline since February 2020.
- The consensus numbers take into account the lockdowns. Nobody expected the data to be as bad as it is.
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 🔒 gold 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 is fluctuating around $30,000. Bulls contend that bitcoin has bottomed. Bears contend that it is going below $21,000.
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 down, and bonds are ticking up.
The dollar is slightly 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 $1806, silver futures are at $41.25, and oil futures are $110.12.
S&P 500 futures resistance levels are 4200, 4318, and 4400 : support levels are 4000, 3950, and 3860.
DJIA futures are down 28 points.
Protection Bands And What To Do Now?
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold 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.
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This post was just published on ZYX Buy Change Alert.
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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.
