By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Market Shocked
Please click here for a chart of 20+ year Treasury bond ETF (TLT).
Note the following:
- The chart shows that TLT entered the support zone. On October 8, about one month before the election, we wrote in the Morning Capsule,
In the event of a one party sweep, TLT can potentially fall to the bottom support zone.
- The chart shows that the Arora election call as it relates to bonds has proven spot on.
- RSI on the chart shows that bonds are oversold. Oversold markets tend to bounce.
- A bounce is happening, as of this writing, after the data released at 8:30am ET. Bonds were down before the data.
- Earlier this morning, Nasdaq futures were down about 1.5% on top of the prior drop. The market has suddenly woken up shocked that the data does not support aggressive rate cuts. Of course, as a member of The Arora Report, you already knew that the data did not support aggressive rate cuts. We have stated and restated this analysis several times over the last two months.
- The market waking up shocked to the data is resulting in selling.
- PCE is the Fed’s favorite inflation gauge. The just released PCE data is helping the stock and bond markets bounce as the data is better than the consensus. Here are the details:
- PCE came at 0.1% vs. 0.2% consensus.
- Core PCE came at 0.1% vs. 0.2% consensus.
- Prudent investors pay attention to personal income and spending because the U.S. economy is 70% consumer based. The data shows that income rose less than expected, and as a result, the consumer is finally pulling back. In The Arora Report analysis, this is not good news for the stock market. The stock market has been going higher, in part, because of the consumer buying binge. Here are the details of the new personal income and spending data:
- Personal income came at 0.3% vs. 0.4% consensus.
- Personal spending came at 0.4% vs. 0.5% consensus.
- In Washington DC, plan A and plan B to avert a government shutdown have failed. Speaker Johnson has just said that the House will vote on plan C this morning.
- In The Arora Report analysis, if there is a government shutdown and if the market drops as a result, the drop will be a buying opportunity.
- After a major additional selloff in the stock market earlier this morning, a relief rally has started after the release of PCE data.
- Today is the largest ever option expiration. The ratio of calls to puts is ten to one, reflecting the extremely aggressive behavior of the momo crowd on one hand and complacency by most investors on the other hand. Please see yesterday’s Morning Capsule for details.
- So far, market makers are successfully picking the pockets of the momo crowd.
- If the relief rally that just started fails, accounts of many momos who mostly buy out of money call options will be totally wiped out by the end of the day.
- 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows were very negative in S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQ) until the release of PCE data. Money flows have turned positive in both after the release of PCE data.
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.
Very Very Short-Term Indicator
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.
Gold
Gold is seeing buying after release of PCE data.
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 *** in oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) was being aggressively sold this morning but is experiencing a relief rally as of this writing after release of economic data.
Markets
Interest rates are ticking down and bonds are ticking up.
The dollar is weaker.
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 5902 as of this writing. S&P 500 futures resistance levels are 5926, 6017, and 6131: support levels are 5748, 5622, and 5500
DJIA futures are down 155 points.
Gold futures are at $2628, silver futures are at $29.41, and oil futures are at $68.83.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The 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.
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.
