By Nigam Arora
To gain an edge, this is what you need to know today.
$4.9 Trillion Triple Witching
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 the stock market continues to levitate well above zone 1 (support).
- RSI on the chart shows the stock market is overbought. Overbought markets are susceptible to a pullback.
- The chart shows the stock market made a new all time high yesterday.
- Yesterday, the stock market ran up on three reasons:
- Excitement over interest rate cuts
- Short squeeze
- Triple witching expiration to the upside ahead
- Triple witching is today. $4.9T notional value of derivatives will expire. In triple witching, index futures, index options, and stock options expire. Triple witching often leads to volatility.
- In The Arora Report analysis, after triple witching the stock market may potentially see some weakness next week unless there is positive news.
- When the Fed cut 50 bps in September 2024 and everyone expected long bonds to rally, The Arora Report made a contrary call. The Arora Report call was for yields to rise on long bonds. Subsequently, yields on long bonds rose significantly. The Arora Report calls on the Fed have been spot on for the last 18 years even though they are often contrary to the prevailing view when they are made. History is repeating, albeit much milder this time around. Yields at the long end are rising, and bonds are falling. The Fed controls the short term rates. In the absence of QE or yield control, long term rates are determined by the market. Long term rates are being driven higher by the Fed presumably cutting rates under political pressure, inflation, deficit spending in Washington, and rising national debt.
- President Trump and President Xi of China have a phone call this morning. Expect a positive spin after the call. The positive spin may bring in buying.
- 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.
Japan
Bank of Japan (BOJ) actions are important to U.S. investors because of the carry trade. In the carry trade, investors have borrowed billions of dollars in Japan and invested the funds in U.S. securities.
BOJ left its policy rate at 0.5%, in line with consensus. There were two votes for an increase.
The most important development is that BOJ is planning to sell its holdings of ETFs and REITs. ETFs will be sold at a rate of JPY300B per year and REITs will be sold at JPY5.5B per year.
In The Arora Report analysis, stocks in Japan are coming under slight pressure due to the BOJ plan. Further in The Arora Report analysis, there is a strong potential for an interest rate hike in October. Depending upon the positioning at that time, an interest rate hike in Japan may bring some selling in the U.S. stock market.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), Meta (META), and Tesla (TSLA).
In the early trade, money flows are neutral in Microsoft (MSFT).
In the early trade, money flows are negative in Nvidia (NVDA).
In the early trade, money flows are negative in S&P 500 ETF (SPY) and positive 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 ***. Remember today is a Friday and short squeezes tend to occur on Fridays. 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. 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) is seeing buying.
Markets
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.
S&P 500 futures are trading at 6703 as of this writing. S&P 500 futures resistance levels are 7000 and 7200 : support levels are 6700, 6500, and 6256.
DJIA futures are up 48 points.
Gold futures are at $3680, silver futures are at $42.22, and oil futures are at $62.93.
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.
