By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
The Folly Of Investor Celebration
Please click here for a chart of 20+ year Treasury bond ETF (TLT).
Note the following:
- The chart shows when The Arora Report predicted that a record supply of Treasuries was ahead. A record supply meant higher yields and lower bond prices.
- With the benefit of hindsight, The Arora Report prediction has proven spot on.
- The chart shows that since the Arora call, there has been a significant drop in bond prices.
- The chart shows that bonds are consolidating significantly below the lower resistance zone.
- We shared with you in yesterday’s Afternoon Capsule:
- The announcement from the U.S. Treasury is adding to the buying pressure in stocks. Here are the details of the Treasury announcement:
- From October to December, the Treasury will borrow $776B. In The Arora Report analysis, this amount is $76B less than the consensus.
- From January to March, the Treasury will borrow $816B.
- That is $1.592T of borrowing over six months. Investors are celebrating by buying stocks. What is wrong with this picture? Celebrating this level of borrowing is a folly.
- The second part of the Treasury announcement is still ahead. In the Treasury’s issuance announcement, the Treasury will provide details of the duration of the notes and bonds it will be selling.
- Details of the issuance have the potential to move the yields, and in return bonds, by a large amount. If more issuance is of long duration, long term yields will rise. If most of the issuance is in the short term, the impact is uncertain.
- In The Arora Report analysis, the Treasury issuance statement is of utmost importance to stock investors. If yields rise further on long term bonds, this will be a negative for the stock market. On the other hand, if yields fall, it will be a positive for the stock market.
- The FOMC meeting starts today. The FOMC decision will be announced at 2:00pm ET tomorrow followed by Powell’s press conference at 2:30 pm ET.
- In The Arora Report analysis, Treasury issuance announcement is more important for investors than the Fed decision.
- Tesla (TSLA) is an important stock for the sentiment in the stock market. As of this writing, TSLA stock is trading below $200. The reason for the drop is two fold:
- ON Semiconductor (ON), a supplier of silicon carbide chips for electric vehicles, reported lower than expected earnings and painted a weak picture of demand from EV manufacturers.
- Panasonic (PCRFY), a supplier of batteries for Tesla vehicles, is cutting battery production.
- The drop in TSLA stock hit other EV stocks such as RIVN, LCID, FSR, and PSNY. Lithium stocks and ETF such as LTHM, LIT, SQM, ALB, SGML, and LAC have also been hit.
- Among the important earnings this morning, earnings from CAT, PFE, AMGN, and BP are lower than expected.
- 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.
Japan
We have been sharing with you the importance of Bank Of Japan (BOJ) policies for U.S. stock investors. In a major development, BOJ is abandoning strict yield control. In the long term, this is negative for the U.S. stock market.
China
In China, factory activity has returned to contraction. Here are the details:
- Manufacturing PMI came at 49.5 vs. 50.2 consensus.
- Non-Manufacturing PMI came at 50.6 vs. 51.8 consensus.
After this data, there are more demands for government stimulus.
Eurozone
Eurozone inflation eases. Here are the details:
- Headline CPI came at 0.1% month-over-month vs. 0.3% consensus.
- Headline CPI came at 2.9% year-over-year vs. 3.1% consensus.
- Core CPI came at 0.2% month-over-month. The prior was 0.2%.
- Core CPI came at 4.2% year-over-year vs. 4.2% consensus.
Flash Q3 GDP came at -0.1% vs. 0.0% consensus. This indicates that the economy in Europe is shrinking.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Meta (META), Microsoft (MSFT), and Alphabet (GOOG).
In the early trade, money flows are neutral in Apple (AAPL) and Amazon (AMZN).
In the early trade, money flows are negative in Tesla and Nvidia (NVDA).
In the early trade, money flows are mixed 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 continues to stay above $2,000.
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
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) continues to levitate.
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 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 $2004, silver futures are at $23.12, and oil futures are at $82.99.
S&P 500 futures are trading at 4194 as of this writing. S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.
DJIA futures are down 33 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 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.
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.
