INVESTORS PAY ATTENTION – NO MOTHER OF SUPPORT ZONES NEARBY – CPI DATA AHEAD

By Nigam Arora & Dr. Natasha Arora

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

No 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:

  • Back in January 2020, The Arora Report made a call that the stock market would see a significant drop due to the virus.  At that time, Wall Street had decided that the virus would not be a problem.
  • The stock market continued to rise after the Arora call in January and made a new high in mid February 2020.
  • We gave investors a clear message of where to buy.  The Arora Report coined the term “mother of support zones.”
  • The Arora Report lowered buy zones by a significant amount to be consistent with the mother of support zones.
  • This chart linked here shows that the market fell in March 2020 to the top of the mother of support zones and then rebounded.
    • Most good stocks such as Apple, Microsoft, and Disney fell well into the much lowered buy zones and subsequently staged big rallies.
  • Early in 2022, The Arora Report gave you three scenarios:
    • A 14% drop in the stock market
    • A 28% drop in the stock market
    • A 40-50% drop in the stock market
  • The chart shows that the first scenario has come true.
  • The chart shows that this morning in the pre market, stocks touched the top band of the support zone we have been showing you for awhile.
  • The chart shows two new support zones.
  • The lowest support zone shown on the chart is consistent with the second scenario given earlier in the year.
  • Here is the most important point.
    • Unlike 2020, there is no mother of support zones nearby to contain the drop in the stock market if the Fed loses control. 
    • On the optimistic side, right now the Fed is contending that it can achieve a soft landing.
    • Historically, with one exception, the Fed has never succeeded at achieving a soft landing.  
  • CPI data will be released at 8:30am ET on May 11.
    • CPI data has the potential to be a binary event.
    • Bulls are contending that the CPI data will show lower inflation and trigger one of the biggest stock market rallies ever.  
  • Note from the chart, that the low this morning is lower than the low formed on Russia invasion.
  • As an actionable item, the sum total of the foregoing is in the “Protection Bands And What To Do Now” section below.

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 dollar has risen to a two decade high.  Since gold is priced in dollars, the price of gold goes down when the dollar rises.  

It is remarkable that the price of gold has held up so well so far in spite of a very strong dollar. In theory, based on the dollar rise, the price of gold should have been about $200 lower than where it is. This is very bullish for 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

Saudi Arabia is cutting oil prices for all countries except the United States.

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is being sold with NASDAQ stocks and has now fallen below $33,000.

For the first time in a long time, money is beginning to flow out of bitcoin and into gold.  

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.

After hitting new highs, the dollar is pulling back.

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 $1865, silver futures are at $21.83, and oil futures are $107.20.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.

DJIA futures are down 379 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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Nigam Arora

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

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.

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