A RARE DATA DAY AHEAD — STOCK MARKET HAS THE POTENTIAL TO FLY OR FALL

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By Nigam Arora & Dr. Natasha Arora

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

CPI And FOMC Ahead

Please click here for a chart of 20+ year Treasury bond ETF (TLT).

Note the following:

  • The direction of bonds tomorrow will likely determine the direction of the stock market.
  • The chart shows TLT is below the low band of the resistance zone.
  • The chart shows that going into important data, volume has stayed low, indicating lack of conviction.
  • Volume in S&P 500 has also stayed low, indicating lack of conviction ahead of the data.
  • If bonds approach the mini support zone, then stocks will fall.  If bonds return to the resistance zone, then stocks will fly.
  • Bonds will move on a rare data day tomorrow – both Consumer Price Index (CPI) and FOMC rate decision will be released.
  • CPI will be released at 8:30 am ET.  Here are the details:
    • The consensus for the headline CPI is 0.1%.
    • The consensus for the core CPI is 0.3%.
  • The Fed is meeting today and tomorrow.  The Fed will announce its rate decision tomorrow at 2pm ET, followed by Powell’s press conference at 2:30pm ET.
  • The current consensus is that the Fed will leave interest rates unchanged.  The CPI data could influence the Fed’s decision as the data will be released during the FOMC meeting.
  • Here is what we will be paying close attention to at The Arora Report:
    • The language of the FOMC statement
    • Dot plot.  The dot plot contains projections from FOMC members and is released every three months.
    • Powell’s press conference
  • In yesterday’s Morning Capsule, we wrote:

The election results from Europe are dampening the sentiment across the globe.

  • In the first opinion poll since Macron called for a snap election, forecasts project the far-right National Rally will win the election but will not gain absolute majority.
  • French government bonds are tumbling, leading to a selloff across Europe.
  • In the early trade in the U.S., stocks are being sold due to dampening sentiment emanating from Europe.
  • 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 positive in Tesla (TSLA).

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

In the early trade, money flows are negative in Meta (META) and Microsoft (MSFT).

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.

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 *** in 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 and trading around $67,000.

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.

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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 $2335, silver futures are at $29.57, and oil futures are at $77.53.

S&P 500 futures are trading at 5358  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 149 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.

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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.

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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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