By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Quad 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:
- Quad witching is tomorrow.
- In quadruple witching, stock index futures, futures options, stock options, and single stock futures expire. Quadruple witching often leads to volatility.
- In The Arora Report analysis, quad witching is to the upside. As of this writing, the buying is extremely aggressive.
- The chart shows that the stock market has broken above the support/resistance zone. If the stock market continues to go higher, this zone will become the top support zone.
- RSI on the chart shows that the stock market has quickly become very overbought.
- We wrote yesterday in the Morning Capsule:
A 50 bps cut and highly dovish commentary will be helpful for a Harris election. The Fed will never admit it, but there is a school of thought that the Fed wants to help Harris win the election. The reason is that Trump has already said he will not reappoint Powell. Further, Trump has said that he will interfere with the Fed.
- Here is the reaction from Trump and a Republican Senator:
- Trump says that the Fed is playing politics. Trump said, “The economy would be very bad or they’re playing politics, one or the other. But it was a big cut.”
- Republican Senator Tuberville said, “Proud of Fed Governor Bowman for bucking Jay Powell. The Fed’s drastic rate cut is shamelessly political.”
- Fed Governor Michelle Bowman has become the first Fed Governor since 2005 to dissent. She was in favor of a 25 bps cut.
- IBM (IBM) is reportedly quietly laying off thousands of workers. The layoffs are apparently being done in secret. The new trend seems to be to lay off workers secretly. The trend is especially strong in information technology. In The Arora Report analysis, the trend is likely to accelerate further as AI takes hold in corporations.
- In The Arora Report analysis, investors should note that long bonds continue to see selling after the Fed rate cut. Further, in The Arora Report analysis, after the quad witching fever wears off and if bonds do not rally, stock market investors will notice lower bonds. The result may be the market giving up some of the large gains.
- Jobless claims came at 219K vs. 232K consensus. This data is strong. If this data had come out before the Fed rate cut, the market would have likely gone down as this data does not support the 50 bps cut. However, now the market is ignoring the data because the Fed has already made its move.
- 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.
England
The Bank of England (BOE) kept its rates unchanged. The BOE decision is as expected.
Japan
Traders are anxiously awaiting the Bank of Japan (BOJ) decision. There is no clear consensus if BOJ will raise rates. Due to the carry trade, BOJ’s decision is very important for U.S. investors.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are positive 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) buying 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 *** gold in the early trade. Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
More explosions in Lebanon are bringing buying into oil. Previously Israel engineered thousands of pagers used by Hezbollah to explode simultaneously. Now, walkie-talkies used by Hezbollah are also exploding. Israeli Defense Minister Yoav Gallant said, “We are at the start of a new phase in the war — it requires courage, determination and perseverance.”
In The Arora Report analysis, the concern is that Israel is getting ready to expand the war.
The momo crowd is *** oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Trump paid for a transaction in a bar with bitcoin (BTC.USD). This, in addition to the Fed rate cut, is bringing buying into bitcoin.
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 up, and bonds are ticking down.
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 $2603, silver futures are at $31.32, and oil futures are at $71.09.
S&P 500 futures are trading at 5767 as of this writing. S&P 500 futures resistance levels are 5926 and 6017: support levels are 5748, 5622, and 5500.
DJIA futures are up 456 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
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.
