By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Dollar Rises
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 the stock market is consolidating in the resistance zone.
- The chart shows that in the early trade today, the stock market is experiencing a pullback on higher dollar and rising yields.
- The dollar is rising for two reasons:
- The pro-independence party won the election in Taiwan. So far, the weather in the Taiwan Strait is bad and precludes any military action.
- After being convinced that there will be six rate cuts this year starting in March, the consensus is beginning to waver. Voices of those who think a rate cut in March is premature are getting louder.
- As the dollar rises, it negatively impacts the earnings of multinationals.
- Yields are also rising on concerns that the market consensus of a rate cut in March is premature.
- Rising dollar and rising yields are dampening animal spirits in the stock market.
- Notable earnings reported this morning are Goldman Sachs (GS) and Morgan Stanley (MS). On the surface, earnings look good. Initially, both stocks rose. However, as investors look deeper into earnings, selling has come in to both stocks as of this writing in the premarket.
- AMD stock (AMD) is seeing very aggressive buying this morning on upgrades by three different banks, with targets ranging from $170 – $200. Of note is that AMD has run up higher than the prior targets of the two banks that were at $120 and $130. AMD is trading at $150.11 as of this writing in the premarket.
- Trump’s clear win in Iowa is moving a large number of stocks. Beneficiaries of a Trump presidency are seeing buying.
- Of note is Digital World Acquisition Corp. (DWAC), the owner of Trump’s social media company TRUTH Social. DWAC stock is rising.
- Apple (AAPL), due to its heavy weight in indexes, has a disproportionate impact on the stock market. The stock market is impacted by a downdraft in AAPL this morning. If Apple does not prevail in its fight with Masimo (MASI), it is planning to remove the blood-oxygen sensor from its watches to get around a ban over a patent dispute with Masimo.
- There are also reports that Apple is discounting iPhones in China due to competition from Huawei. You may recall that we previously informed you about the semiconductor breakthrough that the Chinese had achieved. We had shared with you that the breakthrough had put Apple at risk.
- In Washington, both parties have announced a bipartisan tax deal that will provide $78B in tax breaks for businesses. If implemented, the deal will boost the stock market.
- 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 Microsoft (MSFT) and Nvidia (NVDA).
In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
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.
Gold
Gold is priced in dollars. For this reason, gold falls when the dollar rises.
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
Tensions are increasing in the Middle East.
- Houthis hit a U.S. owned vessel in the Red Sea.
- Iran fired missiles on targets in northern Iraq and Syria.
Normally, oil is expected to rise when tensions in the Middle East rise. However, oil is being constrained by the rising dollar.
The momo crowd is *** in oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) ran above $49,000 on the approval of ETFs but has now pulled back to $42,815 as of this writing. Bitcoin has experienced a sell the news reaction.
Bitcoin miners such as Marathon Digital (MARA) and Riot Platforms (RIOT) have experienced significant short selling.
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.
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 $2043, silver futures are at $23.21, and oil futures are at $72.79.
S&P 500 futures are trading at 4794 as of this writing. S&P 500 futures resistance levels are 4826, 4852, and 4918: support levels are 4770, 4713, and 4600.
DJIA futures are down 152 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.
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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.
