By Nigam Arora
To gain an edge, this is what you need to know today.
Potential Fourth Mania
Please click here for a chart of leveraged semiconductor ETF (SOXL).
Note the following:
- The chart shows SOXL taking a hit yesterday. SOXL traded as high as $255.53 in the premarket yesterday and later traded as low as $204.00. This is an eye popping 25% drop from the high to the low in one day.
- The immediate trigger for the move was the price action in Micron (MU) stock. In the premarket yesterday, buying in MU stock was extremely aggressive as the momo crowd was attracted to the magnet of $1000. The Arora Report shared this magnet with you awhile ago, well in advance. The magnet is shown in this chart from yesterday’s Morning Capsule. For the sake of full transparency, this chart is unchanged from what was published yesterday morning. MU stock traded as high as $985 in the premarket. As serious concerns developed around the Iran peace deal, MU stock started pulling back. MU stock pulling back before reaching $1000 triggered selling in the entire semiconductor sector. Later yesterday, MU stock traded as low as $888.15.
- The very very short term indicator given in yesterday’s Morning Capsule was negative at a time when markets were exuberant and there was aggressive buying. For mania stocks, that call has proven spot on. In yesterday’s Morning Capsule we wrote:
There is extremely aggressive buying in the early trade, but the mania stocks are very overbought and thus vulnerable to a major pullback anytime.
- To the stock market’s dismay, the U.S. and Iran have exchanged military strikes. The U.S. says strikes were limited and the ceasefire is still in effect. The U.S. and Iran have totally different versions of the peace deal that is claimed to be almost done.
- Yesterday, all three manias (semis, options, and space) took a hit. The space mania was the most resilient.
- In The Arora Report analysis, the just released PCE data has the potential to reignite the manias.
- PCE is the Fed’s favorite inflation gauge. PCE data came cooler than expected Here are the details:
- Headline PCE came at 0.4% vs. 0.5% consensus.
- Core PCE came at 0.2% vs. 0.3% consensus.
- The U.S. economy is 70% consumer based. For this reason, prudent investors pay attention to personal income and personal spending. Here are the details:
- Personal spending came at 0.5% vs. 0.4% consensus.
- Personal income came at 0.0% vs. 0.5% consensus.
- GDP data is weak. Here are the details:
- Q1 GDP second estimate came at 1.6% vs. 2.0% consensus.
- Q1 GDP Deflator second estimate came at 3.5% vs. 4.5% consensus.
- Durable orders data is strong. Here are the details:
- Durable orders came in at 7.9% vs 1.7% consensus.
- Durable orders ex-transportation came at 1.1% vs 0.5% consensus.
- Initial jobless claims came at 215K vs. 214K consensus.
- There is potential for a new fourth mania in drone companies. Drone companies have seen selling and stocks have pulled back on the prospect of peace with Iran. However, the Trump administration is looking at providing major funding to drone companies. The companies of interest are Red Cat (RCAT), Unusual Machines (UMAC), Kratos Defense & Security Solutions (KTOS), and AeroVironment (AVAV). There are positions in RCAT and UMAC in ZYX Buy, and there is a new signal on a trade around position on RCAT.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Meta (META) and Microsoft (MSFT).
In the early trade, money flows are neutral in Amazon (AMZN) and Apple (AAPL).
In the early trade, money flows are negative in Alphabet (GOOG), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are neutral 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. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary 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
The momo crowd is *** in gold in the early trade. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). 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
It appears some bitcoin (BTC.USD) holders have been selling bitcoin to participate in the three manias.
Markets
Interest rates and bonds are range bound.
The dollar is range bound.
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 7541 as of this writing. S&P 500 futures resistance levels are 7700, 7900, and 8000 : support levels are 7500, 7200, and 7000.
DJIA futures are down 64 points.
Gold futures are at $4462, silver futures are at $74.17, and oil futures are at $90.47.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora 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.
