SOFT TREASURY AUCTIONS ARE HITTING THE STOCK MARKET, MT. GOX RELATED DROP IN BITCOIN

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By Nigam Arora & Dr. Natasha Arora

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

Poor Treasury Auctions

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 that the stock market has pulled back to the upper band of the support zone.
  • RSI on the chart foreshadowed that such a pullback might be coming when it hit the rare instance of reaching 100.
  • The stock market is coming under pressure because two Treasury auctions were soft.
  • Here are the details of the $70B five year Treasury auction results:
    • High yield: 4.553% (When-Issued: 4.540%)
    • Bid-to-cover: 2.30
    • Indirect bid: 65.0%
    • Direct bid: 15.4%
  • Here are the details of the $69B two year Treasury auction results:
    • High yield: 4.917% (When-Issued: 4.907%)
    • Bid-to-cover: 2.41
    • Indirect bid: 57.9%
    • Direct bid: 25.5%
  • There is another Treasury auction of $44B seven year notes.  The results of the auction will move the market.
  • Minneapolis Fed President Neel Kashkari said that a rate hike is not off the table.  He also said that the Fed could keep interest rates higher for longer.
  • The probability of the Fed doing nothing over the next three meetings has now moved up to 53% from 42% a week ago.
  • New York Fed President John Williams will speak at 1:45pm ET.  His comments might move the market.
  • The Fed’s Beige Book will be released at 2pm ET and will provide more information.
  • Prudent investors should also note that the Conference Board’s Consumer Confidence Index rose to 102.0 vs. 96 consensus.  This large increase in consumer confidence indicates that the jobs picture is strong, the consumers are likely to spend, and consumers do not expect a drop in their income.
    • In The Arora Report analysis, if confirmed by other data, high consumer confidence will make it harder for the Fed to cut rates.   
  • 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.
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Magnificent Seven Money Flows

In the early trade, money flows are neutral in Nvidia (NVDA) and Apple (AAPL).

In the early trade, money flows are negative in Amazon (AMZN), 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 *** stocks 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, very short term trades, consider following the momo crowd and not smart money.

Gold

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

Oil is rising after a Greek owned ship was hit by a missile in the Red Sea.

The momo crowd is *** oil in the early trade.  Smart money is *** in the early trade.

For longer-term, please see oil ratings.

Bitcoin

There was a move of billions of dollars worth of bitcoin (BTC.USD) in a single wallet.  The speculation is that this is related to Mt. Gox. Mt. Gox is a crypto exchange that collapsed.  As much as $9B worth of bitcoin may be sold.

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.

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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 $2343, silver futures are at $31.97, and oil futures are at $80.36.

S&P 500 futures are trading at 5286 as of this writing.  S&P 500 futures resistance levels are 5400, 5500, and 5622 : support levels are 5256, 5210, and 5020.

DJIA futures are down 268 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.

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.

See also  PRUDENT INVESTORS PAY ATTENTION TO CANARY IN COAL MINE – OBLIVIOUS MOMO CROWD SUPPORTING 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.

To take a free 30-day trial to paid services to gain access to more opportunities, please click here.

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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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