By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Critical Waller Remarks Ahead
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 formed a double top inside the resistance zone and was unable to penetrate the resistance zone. From a technical perspective, this is a negative.
- The chart shows that the stock market has fallen below the resistance zone.
- RSI on the chart shows that the stock market is oversold. Oversold markets tend to bounce. This is exactly what is happening in the early trade. In the early trade, almost all of the buying is from the momo crowd. Smart money is waiting for remarks from Fed Governor Waller.
- Critical remarks from Fed Governor Waller are ahead after the jobs report. Waller will speak at 11am ET. It appears that the reason Waller remarks are scheduled at this time is to give Waller time to consult with Powell and other Fed members and provide the market with some guidance.
- Waller’s remarks will determine the near term market direction.
- In The Arora Report analysis, the jobs report, also known as the mother of all reports due to its importance, has disappointed both bulls and bears. The reason is because the data is such a mixture it does not fit anyone’s narrative. Here are the details:
- Nonfarm payrolls came at 142K vs. 165K consensus.
- Nonfarm private payrolls came at 118K vs. 142K consensus.
- Average hourly earnings came at 0.4% vs. 0.3% consensus.
- Average work week came at 34.3 hours vs. 34.3 hours consensus.
- Unemployment rate came at 4.2% vs. 4.2% consensus.
- This jobs report makes the Fed’s job difficult as the data does not clearly support either of the two Fed scenarios – 25 bps cut or 50 bps cut.
- ISM Non-Manufacturing Index came at 51.5% vs. 51% consensus. This stronger than expected data has helped the stock market.
- Prudent investors should note the yen is rallying after the jobs report. This increases the risk to the carry trade and in turn, to the U.S. stock market.
- The momo crowd was pinning its hopes on Broadcom (AVGO) earnings to kickstart another leg of the AI stock rally. Broadcom is a major chip supplier including custom AI chips for hyperscalers.
- Broadcom met expectations for AI chips.
- Broadcom’s traditional business did not meet expectations.
- Overall Broadcom earnings are significantly less than whisper numbers. This is a negative for AI stocks. However, note that technically, AI stocks are oversold, and oversold stocks tend to bounce.
- Bonds initially rallied after the jobs report. In The Arora Report analysis, there is likely to be a rethink in the bond market. If this rethink happens, the bond market will give up its gains.
- 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 Apple (AAPL), Alphabet (GOOG), Meta (META), Nvidia (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 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.
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
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 after the jobs report along with junk stocks.
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 and bonds are very volatile.
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 $2556, silver futures are at $29.35, and oil futures are at $69.54.
S&P 500 futures are trading at 5516 as of this writing. S&P 500 futures resistance levels are 5622, 5748, and 5926 : support levels are 5500, 5400, and 5256.
DJIA futures are up 20 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 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.
