GUIDANCE CHANGE, PROBABILITY OF CHINA INVADING TAIWAN GOES HIGHER – MOMO CROWD OBLIVIOUS

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By Nigam Arora & Dr. Natasha Arora

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

Guidance Change

The probability has increased to 55% that a tradable rally can occur from here purely on technicals.  The macro picture has not changed and still calls for a lower stock market.  If a rally does occur, based on the macro picture as of this writing, the rally is likely to fail around 4000 level in the S&P 500.  As a reference, S&P 500 is trading at 3681 as of this writing.  This equates to about an 8.6% rally.  Most of the time, signals are given when the probability reaches 70%, but sometimes exceptions are made.

After a rally failure, the probability of the stock market dropping to about 3200 remains high.  We have previously discussed the plan to buy such a drop.  We previously wrote,

We previously shared with you that some institutions were heavy buyers of stock around S&P 500 3600.  Expect many institutions to heavily buy stocks around S&P 500 level of 3400.

At the same time be aware that stops of many institutions and hedge funds are right under 3400.  Hunt and destroy algorithms will attempt to take out these stops.  If these stops are taken out, there may be panic selling.  Our plan is to buy into the panic selling if panic selling occurs.

Nothing is cast in stone.  The call will change as the data changes.

Based on the foregoing, it comes down to how much you want to trade and how nimble you want to be.

Depending on your personal preference, you can consider a small shift to reduce  protection in the ranges given in the protection band.  For the protection band, please see the “Protection Bands And What To Do Now” section of the Morning Capsule.

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Based on the price action today, the probability of a tradable rally has gone up.  There is a change in guidance.  Please see the “Buy Zones And Buy Now Ratings” section below.

Intelligence Report

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:

  • There is a report citing U.S. intelligence that the probability of China invading Taiwan has gone up.
  • If China invades Taiwan, most business with China will likely stop, just like most business with Russia has stopped.
  • Such an event will be especially bad for today’s popular stocks with substantial presence in China.  Examples include Apple (AAPL), Tesla (TSLA), Nike (NKE), and Starbucks (SBUX).
  • Semiconductors are the lifeblood of the modern economy.  Taiwan is a major producer of semiconductors.  In such an event, availability of semiconductors will come crashing down, crippling the U.S. economy.
  • In such an event, expect a significant drop in the U.S. stock market.
  • To be clear, there is no imminent danger of China invading Taiwan.  However, you need to be aware of this situation in planning your long term allocation to stocks.  There is a 20% probability that one fine morning over the next year, you may wake up to find a significant drop in the stock market due to China invading Taiwan.  
  • The U.S. government is encouraging U.S. companies to diversify their sources of semiconductors.
  • China has indefinitely delayed the release of its key GDP number.  The Arora Report inference is that the number must not be good.
  • The chart shows that the momo crowd is oblivious to the danger and aggressively buying stocks because of the four reasons stated in the Morning Capsule.
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • The VUD indicator is mostly orange, indicating net supply of stocks.  The inference is that many investors are taking advantage of the strength generated by momo crowd buying to lighten up their positions.
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Money Flows

The momo crowd money flows since the Morning Capsule are 🔒 (To see the locked content, please take a 30 day free trial) .

Smart money flows since the Morning Capsule are 🔒.

Short squeeze money flows are 🔒.

A Special Note To New Subscribers

Note the smart money behavior.  Smart money tends to sell into strength on strong up days.

New subscribers should consider adopting smart money’s way of investing and trading.

Sentiment

Sentiment is 🔒.

Sentiment is a contrary indicator at extremes.  In plain English, this means that when sentiment becomes extremely positive it is time to sell and when sentiment becomes extremely negative it is time to buy.

Close

There appear to be buy on close orders.

There is merit to watching the pattern of market on close orders as they represent the day’s dominant net cumulative activity by many professionals and funds.

Gold

The momo crowd money flows in gold are 🔒 since the Morning Capsule.

Smart money flows are 🔒 in gold since the Morning Capsule.

Oil

The momo crowd money flows in oil are 🔒 since the Morning Capsule.

Smart money flows in oil are 🔒 since the Morning Capsule.

Buy Zones And Buy Now Ratings

🔒

Nibbling

🔒

This post was published yesterday in The Arora Report paid services.  Since then the Morning Capsule has had an update in the paid services.

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Picture of 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.

Picture of 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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