By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Fight To The End
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 has moved up and is now in resistance zone 1.
- RSI on the chart shows that in spite of the rally, the stock market is still oversold. If the rally takes hold, the stock market can go much higher.
- The chart shows that the volume yesterday was even higher than the prior session. This indicates that sellers are temporarily exhausted.
- Prudent investors should pay attention to the volatility – the intraday range in S&P 500 futures spanned 9% yesterday. This is extraordinary.
- As is often the case, there are crosscurrents this morning related to the trade war.
- After President Trump threatened additional 50% tariffs on Chinese goods on top of the already announced tariffs to punish China for retaliation, China is promising to fight to the end.
- 70 countries are coming to the table to negotiate with Trump instead of retaliating.
- Nikkei 225 in Japan jumped 6% overnight as Japan appears to be one of the first countries to negotiate with President Trump.
- Sentiment has made one of the fastest switches ever. Sentiment has swung from extremely negative on Friday and yesterday morning to extremely positive this morning.
- Stock market gurus who were shouting from the tops of their lungs on Friday and over the weekend that Monday would see a 1987 style crash in which the stock market fell by over 20% in one day are claiming this morning that they were right.
- Stock market gurus who were beating their chests urging their followers to buy stocks when S&P 500 was hitting its high around 6100 are claiming this morning that they were right
- Wall Street is a happy place this morning in a remarkable switch from near panic in overnight trading on Sunday night.
- In The Arora Report analysis, when sentiment swings so widely from one extreme to the other, it indicates a lack of stability and investors are mainly being driven by emotions. The emotions of both greed and fear are your enemy. Consider being highly disciplined, highly analytical, and totally data driven.
- In the middle of the euphoria that has broken out this morning, Wall Street is not thinking ahead.
- How will the stock market react if Trump goes ahead and imposes 50% additional tariffs on China?
- How will the stock market react if negotiations with friendly countries such as Japan do not proceed as quickly as the stock market anticipates?
- Consumer Price Index (CPI) and Producer Price Index (PPI) are ahead this week. CPI and PPI are lagging indicators. How will the stock market react if these lagging indicators start showing that inflation is persistent? We have been sharing with you that leading indicators are showing that inflation is persistent. Of course, there is also the flip side – if CPI and PPI come lower than expected it will add fuel to the fire of bullishness.
- In The Arora Report analysis, the scrooge of stagflation potentially raising its ugly head is still present.
- The growth in the U.S. economy has been, in large part, driven by excessive government borrowing and government spending. What will happen to the growth if President Trump truly succeeds at cutting government spending?
- On the positive side, tax cuts and deregulation are ahead.
- In The Arora Report analysis, prudent investors should pay attention to bonds. At this point in time, bonds are like a canary in the coal mine. Bond yields have rapidly risen from their lows yesterday morning in a dizzying move. Yields on 10 year Treasuries have risen from 3.865% yesterday morning to 4.226% as of this writing. This has three interpretations:
- The panic is over.
- Stagflation is coming.
- Many experts are claiming that foreigners are selling U.S. Treasuries. In The Arora Report analysis, at least for today, this interpretation is wrong. This is clear from the moves in the dollar.
- Both bulls and bears are claiming that a capitulation has occurred. The Arora Report has never been afraid of making contrary calls. The vast majority of highly contrary calls from The Arora Report have proven spot on over the last 18 years. In The Arora Report analysis, only fast moving hedge funds have capitulated, but no one else capitulated. For The Arora Report to give a signal to back up the truck and buy stocks, almost everyone needs to capitulate. Again, it is important to be highly analytical and not get carried away with the bullish euphoria of this morning.
- 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 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) stocks in the early trade. Smart money is *** stocks 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 protection band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
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.
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
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 aggressive buying. The momo crowd’s favorite software company Strategy Incorporated (MSTR), whose primary business is to buy bitcoin, lost $5.91B in bitcoin in the last quarter. How is the momo crowd responding to the news of the huge loss? The momo crowd is aggressively buying MSTR stock.
Markets
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.
S&P 500 futures are trading at 5218 as of this writing. S&P 500 futures resistance levels are 5256, 5400, and 5500: support levels are 5210, 5020, and 4918.
DJIA futures are up 1053 points.
Gold futures are at $3020, silver futures are at $30.18, and oil futures are at $61.31.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The 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.
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.
