By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Buying On Rising Layoffs
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 vigorously risen from the recent pullback.
- The chart shows that RSI reached oversold levels during the recent pullback and now has risen to touch the lower band of the overbought zone. Historically, this setup leads to more stock market gains.
- The chart shows that the volume during the recent rise is not heavy. This indicates lack of conviction.
- The chart shows that the stock market is now in the resistance zone.
- In The Arora Report analysis, stops of the short sellers are right above the resistance zone. If the stock market rises further, Wall Street’s hunt and destroy algorithms will kick in, taking out the stops of short sellers and igniting a short squeeze. The result of such a scenario would be a new stock market high.
- Yesterday in the Morning Capsule we shared with you:
Jobless claims came at 231K vs. 213K consensus. This indicates that the job market is beginning to slow.
- The bulls latched on to the rise in jobless claims and aggressively bought stocks. There is merit to this line of thinking because Powell is already itching to cut rates and rising layoffs will give him an excuse to cut rates.
- Prudent investors need to be somewhat careful as weekly jobless claims series is very volatile.
- For proper analysis at The Arora Report, in addition to the weekly data, we look at a four week moving average of initial jobless claims. The four week moving average is now at 215K – up 2.26% from the prior week and down 10.14% from a year ago. Considering the size of the U.S. economy, a rise of 2.26% over the prior week is hardly meaningful, but do not tell that to trigger happy stock market bulls. Prudent investors should watch the trend over a period of several weeks, not just one week. Jobless claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions. Please click here to see how this is achieved. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.
- Adding to the optimism this morning is a report of rising revenues at the world’s largest chip manufacturer Taiwan Semiconductor Manufacturing Company (TSM). TSM is manufacturing a vast majority of the artificial intelligence chips, and the data shows sales are booming. Here are the details:
- April revenues came at T$236.02B. This is up 59.6% year-over-year and up 21% month-over-month.
- January – April revenue came at T$828.67B. This is 26% year-over-year.
- Data from TSM is bringing buying into artificial intelligence stocks such as Nvidia (NVDA), AMD (AMD), Micron (MU), and Applied Materials (AMAT).
- 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.
China
Stocks in Hong Kong have reached a nine month high. There is China risk, but stocks in Hong Kong represent the best value in the whole world at this time. The ETF of choice is FXI. For the buy zone and short, medium, and long term ratings, please see ZYX Emerging Model Portfolio.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Apple (AAPL) Meta (META), NVDA, and Tesla (TSLA).
In the early trade, money flows are neutral in Amazon (AMZN) and Microsoft (MSFT).
In the early trade, money flows are negative in Alphabet (GOOG).
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 *** in the early trade.
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 rising along with tech stocks.
Markets
Our 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.
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.
Gold futures are at $2367, silver futures are at $28.61, and oil futures are at $79.53.
S&P 500 futures are trading at 5250 as of this writing. S&P 500 futures resistance levels are 5256, 5400, and 5500 : support levels are 5210, 5020, 4918.
DJIA futures are up 81 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 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 seven 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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This post was just published on ZYX Buy Change Alert.
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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.
