By Nigam Arora
To gain an edge, this is what you need to know today.
CPI Saves Stock Market
Please click here for a chart of leveraged semiconductor ETF (SOXL).
Note the following:
- The semiconductor mania has been largely responsible for levitating the entire stock market. For this reason, smart money keeps a close eye on semiconductors.
- The chart shows that yesterday leveraged semiconductor ETF SOXL started the day higher than the high of the prior day. This brought in aggressive buying in the premarket yesterday.
- The chart shows yesterday leveraged semiconductor ETF SOXL fell right from the opening of the regular session. The proximate reason was chatter about mounting tension between China and Taiwan. The most advanced semiconductors are manufactured in Taiwan, and a significant part of the supply chain for semiconductors is in Taiwan and China. The Arora Report has previously highlighted that China considers Taiwan part of China, and there is an ever present risk of China accomplishing its objective of bringing Taiwan in its fold by force.
- The chart shows that yesterday SOXL fell to the low band of zone 1 (support).
- The momo crowd aggressively bought the dip yesterday causing SOXL to close above the high band of zone 1.
- Prudent investors should note the following:
- Yesterday’s low in semiconductors, shown on the chart, undercut Friday’s low.
- As shown on the chart, there was heavier volume both during yesterday’s selloff and Friday’s selloff in semiconductors.
- Note that SOXL traded as high as $231.01 and as low as $157.56 yesterday – a very wide range for one day of trading.
- The chart shows RSI was turning up yesterday, but now it is turning down.
- In The Arora Report analysis, the tell for the entire stock market is if semiconductors can hold above the low band of zone 1 shown on the chart.
- As the chart shows, before the release of Consumer Price Index (CPI) data, semiconductors were seeing heavy selling. After release of CPI data, semiconductors immediately saw heavy buying.
- There was aggressive selling in the stock market in the early trade prior to the release of CPI data. Immediately after the release of CPI data, aggressive buying came in the stock market. The reason is less than expected Core CPI. The narrative is that headline inflation will come down after the Iran conflict is resolved. Here are the details:
- Headline CPI came at 0.5% vs. 0.5% consensus.
- Core CPI came at 0.2% vs. 0.3% consensus.
- In The Arora Report analysis, this CPI data eliminates any probability of a rate hike in the upcoming Fed meeting.
- Produce Price Index (PPI) will be released tomorrow at 8:30am ET.
- The Iran truce has become more fragile after Iran shot down a U.S. helicopter. The U.S. retaliated in a limited fashion, and Iran responded. President Trump is saying Iran “took too long” in negotiations and will “pay the price.”
- Prudent investors should note oil has nudged up only a little after falling yesterday, before the confirmation that Iran had shot down a U.S. helicopter. This indicates that the oil market continues to believe that neither side wants war.
- Many less-informed investors are getting excited that SpaceX (SPCX) subscription interest reportedly stands at $250B for a $75B IPO.
- Prudent investors should note, many recent hot IPOs, such as Cerebras Systems (CBRS), have been over 20x oversubscribed. However, SpaceX is unique in that it is the biggest IPO in history, so 20x may not be a fair benchmark. But, 3x–4x oversubscription is not automatically bullish.
- In the middle of all of the bullishness about the SpaceX IPO, bears are promoting a narrative that the SpaceX IPO marks a top in the stock market.
- As a full disclosure, The Arora Report has a signal on SpaceX. Members of The Arora Report also have 360 degree analysis on SpaceX including both risks and rewards. There is also a detailed podcast on SpaceX in Arora Ambassador Club.
- In The Arora Report analysis, how SPCX stock trades post IPO will impact the entire stock market.
- 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 neutral in Apple (AAPL).
In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), 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 *** 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
API crude inventories came at a draw of 9.119M barrels vs. a consensus of a draw of 3.4M barrels.
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 seeing selling.
Markets
Interest rates and bonds are round bound.
The dollar is range bound.
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 7362 as of this writing. S&P 500 futures resistance levels are 7700, 7900, and 8000 : support levels are 7318, 7194, and 7032.
DJIA futures are down 195 points.
Gold futures are at $4179, silver futures are at $64.61, and oil futures are at $88.88.
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.
