By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Trump Saves Rally
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows the Apple (AAPL) driven tech rally. The rally was triggered by President Trump removing reciprocal tariffs on smartphones, laptops, servers, and certain semiconductors over the weekend. For details, please see yesterday’s Morning Capsule.
- Members of The Arora Report were already ahead of the curve as they knew there was disappointment that the rally was not bigger.
- The chart shows that due to the disappointment of the rally not being bigger, the rally was contained by the micro resistance zone.
- The chart shows that when tech stocks failed to break above the micro resistance zone, selling came in.
- The chart shows when QQQ broke below the micro support zone.
- The chart shows that hunt and destroy algorithms kicked in to take out the stops of those using traditional technical analysis. No one would put a large amount of cash on a busy sidewalk and not expect it to be stolen – yet this is exactly what the followers of traditional technical analysis do day in and day out. Then they become frustrated when their stops are taken out. Please click here to see why traditional technical analysis does not work well anymore. The Arora Report has made numerous innovations to optimize stops. Consider using stop zones given by The Arora Report. Please see Trade Management Guidelines to read more.
- The chart shows that after stops were taken out by hunt and destroy algorithms, a rally attempt ensued, as is normally the case.
- The chart shows that this rally attempt failed when tech stocks broke below the micro support zone again. This failed rally was the trigger for short sellers to push the pedal. Of course, to the momo crowd every tiny dip is a buying opportunity. Little did the short sellers know that President Trump’s comment about auto companies would be interpreted by the market as help for tech stocks.
- The chart shows when the news spread that President Trump said “I’m looking at something to help car companies with it. They’re switching to parts that were made in Canada, Mexico and other places, and they need a little bit of time, because they’re going to make them here.”
- By the time news spread, as shown on the chart, the stock market was already interpreting Trump’s statement to mean that if he was going to help car companies, he would also help tech stocks. This caused the rally shown on the chart.
- The chart shows that the rally did not reach the micro resistance zone shown on the chart.
- The chart shows that so far the pullback has not broken the micro support zone. The foregoing two points indicate that so far the battle between the bulls and bears is undecided at this time.
- If QQQ breaks below the micro support zone, short sellers will push the pedal again.
- If QQQ breaks above the micro resistance zone, the momo crowd will become very aggressive in buying.
- The import and export prices data released at 8:30am ET this morning provides a learning moment for prudent investors. There are thousands of economic indicators across the globe. Through extensive research a long time ago, The Arora Report identified the economic indicators that matter in achieving high risk adjusted returns and those that do not. The Arora Report system is based only on the indicators that matter. The Arora Report monitors economic indicators from 23 countries. We share in the Morning Capsules only the indicators that matter and leave out the rest. One of the indicators that has received a lot of publicity in the media is import and export prices. Since this data has not made a difference to achieving high risk adjusted returns in recent decades, we have neither reported it in the Morning Capsules nor is it weighted in The Arora Report system. The Arora Report system is a dynamic system – we are continuously evaluating indicators that are moving the markets, adding indicators, and removing indicators that are no longer useful. Due to the current trade war, in the future, import and export prices may be added to The Arora Report system, but only if it helps achieve high risk adjusted returns.
- The financial media is highlighting the import and export data that was released this morning. In The Arora Report analysis, at least for today, investors should ignore this data. The reason is this data, even though released this morning, is pre-tariffs – this data is meaningless for the current market.
- This morning Bank of America (BAC) is reporting better than expected earnings. BAC is in the ZYX Buy Core Model Portfolio. It is long from $7.69. It is trading at $37.34 as of this writing in the premarket, representing a gain of 386% for long time members of The Arora Report.
- Consider not making the biggest mistake we are seeing many investors make at this time. In The Arora Report analysis, the biggest mistake at this time is to follow through with the urge to be a hero in the stock market. There are times to be a hero in the stock market and aggressively buy stocks – right now is not one of them. There are plenty of risks ahead. If nothing else, keep in mind what we have been sharing with you and illustrating with examples – change has unintended consequences. Even if you are a 100% believer in the changes President Trump is initiating and do not care about losses in the short term, as a prudent investor, take into account that there will be unintended consequences that are difficult to foresee. Investors are better off buying a few percent higher from here if the risk decreases compared to aggressively buying now when the risk of a retest of the recent lows and the potential of a break below the recent lows is high. At this time, all buying should be very thoughtful and in moderation.
- 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 Alphabet (GOOG), Meta (META), and Microsoft (MSFT).
In the early trade, money flows are neutral in Nvidia (NVDA).
In the early trade, money flows are negative in Amazon (AMZN), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are mixed 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 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 buying.
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 5428 as of this writing. S&P 500 futures resistance levels are 5500, 5622, and 5748: support levels are 5400, 5256, and 5210.
DJIA futures are down 65 points.
Gold futures are at $3237, silver futures are at $32.33, and oil futures are at $61.10.
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.
