By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Weak Treasury Auction
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 is consolidating around the support zone.
- RSI on the chart shows that the stock market has moved out of the oversold zone.
- The price action in the stock market today will depend on the battle between smart money and the momo crowd.
- The momo crowd is buying on the belief that the correction is over and the Fed will come to the rescue.
- Smart money is trying to reduce risk ahead of the weekend.
- If a short squeeze starts, the market can go much higher. Today is a Friday. Short squeezes tend to start on Fridays.
- The pattern traced by the volatility index VIX suggests a fair probability of the correction being over.
- We shared with you yesterday that the stock market was oversold and oversold markets tend to bounce.
- The chart shows that yesterday the oversold bounce was so strong that it overcame a weak Treasury auction. Here are the results of the Treasury auction:
- $25B 30-year Treasury bond auction
- High yield: 4.314% (When-Issued: 4.283%)
- Bid-to-cover: 2.31
- Indirect bid: 65.3%
- Direct bid: 15.5%
- The price action on Thursday on a weak Treasury auction was directly opposite of the price action on Wednesday.
- On Wednesday, the stock market fell out of bed after weak Treasury auction results were reported.
- In anticipation of weak Treasury results on Thursday, many investors sold short.
- On Thursday when the stock market did not immediately fall on weak Treasury results, short sellers started covering. This buying led to a short squeeze, causing the stock market to go higher.
- In The Arora Report analysis, in view of the rising national debt and high deficits, from a macro perspective, prudent investors should be concerned about weak Treasury auctions. This is especially important because, under Yellen, the U.S. Treasury is manipulating the issuance to prevent weak Treasury auctions. This is one of the elements that go into determining the protection band. Investors should pay attention to the protection band.
- Overnight, futures were higher based on the momentum from yesterday. As we get closer to the opening, there is wider recognition that yesterday’s rally was short covering and an oversold bounce. This is bringing in selling and stock futures have turned negative as of this writing.
- The foregoing illustrates that there are a number of crosscurrents that move the stock market. For example, those who predicted on Thursday that the Treasury auction would be weak were correct but the market reaction was opposite to what would have been expected by less informed investors.
- At least two Fed officials are not onboard with the market’s demands for an emergency rate cut.
- Fed President Tom Barkin expressed that there is time for the Fed to determine if action is required.
- Fed President Jeffrey Schmid said that because inflation is still above the target and the labor market is healthy it is not time for a rate cut.
- 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 positive in Microsoft (MSFT) and Nvidia (NVDA).
In the early trade, money flows are neutral in Amazon (AMZN).
In the early trade, money flows are negative in Apple (AAPL), Alphabet (GOOG), Meta (META), and Tesla (TSLA).
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.
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.
Gold
The momo crowd is *** in 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) has moved above $60,000 on hopes that bitcoin whales will run up bitcoin this weekend.
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 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.
Gold futures are at $2469, silver futures are at $27.59, and oil futures are at $76.49.
S&P 500 futures are trading at 5328 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 60 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.
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.
