By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Raise Cash And Hedges
Based on the adaptive ZYX Asset Allocation Model with inputs in ten categories, it is time to raise hedges. There is a separate post on hedges. Also see the section titled “Arora Protection Band And What To Do Now” below.
A Negative Pattern
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows a prolonged run.
- The chart shows an outside day after the prolonged run. This is a negative pattern.
- The chart shows slightly higher volume. This is quasi-confirmation of the negative pattern. A heavier volume would have been better confirmation.
- RSI shown on the chart is approaching the oversold level. This indicates there could be a bounce.
- The chart shows the major support level at zone 1.
- The chart shows that QQQ is levitating considerably above the major support zone. This illustrates the risk. Smart money pays attention to both risk and reward. In contrast, the momo crowd has stars in their eyes and ignores risk.
- Figma (FIG) is a new IPO that was priced at $33. It has traded as high as $147.87 as of this writing in the premarket. No, Figma did not cure cancer; Figma is a cloud based platform where teams design, prototypes, and collaborate on digital products in real time. FIG stock is now valued at over 70 times sales (not earnings). Buying is coming mostly from the momo crowd. Figmazation of the momo crowd should ring alarm bells for investors as it is indicating extreme exuberance. As we have been sharing with you, extreme positive sentiment is a contrary indicator. In plain English, it means caution. It is worth a reminder that sentiment is not a precise timing indicator.
- There is unease in the markets due to two actions from President Trump:
- President Trump has imposed sweeping tariffs on counties that have not yet reached a deal. The most notable are high tariffs of 39% on Switzerland and 35% on Canada.
- President Trump is making it clear that tariffs are not only about economics. Countries must toe President Trump’s geopolitical line lock, stop, and barrel or be met with harsh treatment.
- Tariffs on Taiwan are raising concern that President Trump will not support Taiwan in the event of a Chinese invasion.
- Tariffs on India are raising a concern that President Trump is walking away from an alliance with the world’s largest democracy to counter China. Further, President Trump is weaponizing Pakistan, India’s archrival and close ally of China, against India.
- The foregoing has serious negative implications in the long term for prudent investors in the U.S. markets.
- Prudent investors should note the long term negative implications for investors of the only country exempt from President Trump’s harsh treatment with tariffs is China. China is the main strategic rival of the U.S. During his campaign and up until about two months ago, the main target of President Trump’s fire was China. In The Arora Report analysis, this was highly justified and badly needed because of the massive transfer of wealth from the U.S. to China over the last 25 years. However, China has turned the tables as China has the U.S. over a barrel on rare earth minerals.
- The jobs report was weak. The weak jobs report is adding fuel to President Trump’s attacks on Fed Chair Powell. Here are the details:
- Non-farm payrolls came at 73K vs. 102K consensus.
- Non-farm private payrolls came at 83K vs. 110K consensus.
- Unemployment rate came at 4.2%% vs. 4.2% consensus.
- Average work week came at 34.3 vs. 34.2 consensus.
- Average hourly earnings came at 0.3% vs. 0.3% consensus.
- In addition to the current data, there are big downward revisions to the data for the last two months. Prudent investors should pay attention that the economic data appears to be less accurate now and more prone to revisions due to staff cuts in the U.S. government. If the accuracy of that data continues to worsen, it will make the markets more volatile. Volatility is not good for most investors but it is good for members of The Arora Report as it provides more opportunities.
- Expect blind money to flow into the stock market today. Blind money is the money that flows into the stock market on the first two days of the month without any analysis irrespective of market conditions.
- ISM Manufacturing Index and University of Michigan Consumer Sentiment will be released at 10am ET today and may be market moving.
- 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
In the early trade, money flows are positive in Apple (AAPL).
In the early trade, money flows are neutral in Microsoft (MSFT).
In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), Meta (META), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are negative 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 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 *** gold in the early trade. Smart money is *** gold 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
Bitcoin (BTC.USD) is range bound.
Markets
Interest rates are ticking down, and bonds are ticking up.
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 6312 as of this writing. S&P 500 futures resistance levels are 6500 and 6700: support levels are 6256, 6131, and 6017.
DJIA futures are down 392 points.
Gold futures are at $3393, silver futures are at $36.91, and oil futures are at $69.34.
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.
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.
