By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know now.
Editor’s Note:
This is the Afternoon Capsule that was provided before jobs report was released. The jobs report was released this morning. To see the latest update, please read the Morning Capsule that is available to paying subscribers. The Morning Capsule is issued every morning before the market open.
Smart Money Sells
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows the following that we previously shared with you:
- The chart shows when the oversold bounce started in Nasdaq futures at 6pm on July 30.
- The chart shows that the initial technical bounce triggered a short squeeze.
- The chart shows the Powell rally.
- The chart shows when the short squeeze ended.
- The chart shows the market has given up a majority of the gains from the oversold technical bounce, short squeeze, and Powell’s press conference.
- The chart shows when ISM data was released at 10am. Here are the details:
- ISM Manufacturing Index came at 46.8% vs. 48.5%.
- In The Arora Report analysis, ISM data shows that the manufacturing economy is weakening faster than anticipated.
- The chart shows that smart money started selling on weak ISM data.
- The chart shows that smart money selling overcame aggressive momo crowd buying.
- We have been sharing with you for a while that there is a big flaw in momo gurus’ pitch to persuade the momo crowd to buy stocks. Momo gurus’ pitch has been that bad news is good because it will persuade the Fed to lower interest rates. We have repeatedly shared with you that the flaw in the argument is that if the economy weakens, earnings will also weaken. Weaker earnings mean a lower stock market.
- There is an interplay of various factors here. It is important to understand the interplay. For those wanting next level information on interplay, we have started work on an in depth podcast. The podcast will be available in Arora Ambassador Club.
- Apple (AAPL) and Amazon (AMZN) earnings after hours will be the next trigger for the market.
- The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
- The VUD indicator is orange due to the market drop. This indicates net supply of tech stocks.
Potential After Hour Signals
Signals may be given after hours based on the news that will be released after hours. The best trades often occur outside regular hours. The reason is that almost all earnings are outside regular hours.
Buy signals will be in ZYX Buy. Short signals will be in ZYX Short.
Here is the list:
AAPL
AMZN
ARDX
BKNG
CLX
COIN
DASH
DKNG
EOG
GDDY
INTC
MARA
MCHP
MP
MSTR
NET
RARE
ROKU
SNAP
SQ
TNDM
TWLO
VRTX
X
Money Flows
The momo crowd money flows since the Morning Capsule are *** (To see the locked content, please take a 30 day free trial).
Smart money flows since the Morning Capsule are ***.
Short squeeze money flows are ***.
A Special Note To 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, very short term trades, consider following the momo crowd and not smart money.
Sentiment
Sentiment is ***.
Sentiment is a contrary indicator at extremes. In plain English, this means that when sentiment becomes extremely positive it is time to sell and when sentiment becomes extremely negative it is time to buy.
Close
Orders on close are ***.
There is merit to watching the pattern of market on close orders as they represent the day’s dominant net cumulative activity by many professionals and funds.
Gold
The momo crowd money flows in gold are *** since the Morning Capsule.
Smart money flows are *** in gold since the Morning Capsule.
Oil
The momo crowd money flows in oil are *** since the Morning Capsule.
Smart money flows in oil are *** since the Morning Capsule.
Buy Zones And Buy Now Ratings
Consider not starting any new strategic positions unless they are uncorrelated until there is more clarity if the momo crowd has the fire power to run up the stock market and what smart money is going to do next.
Examples of uncorrelated positions include gold ETF (GLD) and Japanese yen ETF (FXY).
It is fine to start tactical positions based on new posts. It is fine to start new short positions based on signals.
For tactical positions, consider taking profits as they run up.
Nibbling
Consider not nibbling at this time.
Nibbling refers to buying very small quantities, often in existing long-term positions with the intention of exiting these additions in the short term. It is similar to trade around positions but without specific signals.
The Afternoon Capsule is not published daily but only when conditions warrant it. The content below is unchanged and is to be used for reference as needed.
Sophistication
The character of the market has changed. Unfortunately, the last decade was an exception to the rule. Take a look at the chart of the US market for a 15 year period from 1967 – 1982 — the stock market made no progress.
Many investors are spoiled due to the decade-long bull market. A large number of investors believe that all they have to do is to buy and hold forever. Investors who do not believe in buy and hold forever say it is very simple – be all in or be all out. Both beliefs are wrong.
As the market turns volatile, many investors who do not understand the true nature of the market are jumping in with both feet without appreciating the risks, while other investors are getting whipsawed.
Risk and reward are two sides to the coin. It is important to consider both.
For your reference, we are pasting the following from your Getting A Running Start Guide,
Everything should be made as simple as possible but not simpler.
Albert Einstein
Strategic Vs. Tactical
All investors should consider bringing more sophistication to their investing and trading. It is important to clearly understand the difference between strategic and tactical calls. For your convenience, a prior post is pasted below.
We welcome your comments and questions. The law does not allow us to answer them individually. However, when a large number of subscribers ask similar questions, a post is done – typically starting with Ask Arora.
Strategy
Strategy defines medium to long term plan to achieve the highest risk-adjusted returns.
Here are some examples of strategic calls for illustration only.
- It is late cycle. Portfolios have to be organized for the late-cycle. Risks are much higher in the late-cycle compared to when a bull market is in an early stage.
- The world is awash in debt. The sovereign debt owed by governments and corporate debt owed by zombie corporations has dramatically increased. It is a bubble that is getting bigger waiting for a pin to prick it.
- Valuations are expensive.
- Fed policy is shifting.
- Earnings are rising.
Tactics
Tactics are small adjustments within the strategy to further enhance risk-adjusted returns.
Here are some examples of tactical calls.
- Weak hands temporarily washed out.
- Overbought condition temporarily relieved.
- Sentiment backing off from almost extreme bullish levels.
If You Could Pick Only One
We recognize that all investors have individual preferences. If you could pick only one, consider focusing on the strategy. Never focus only on tactics at the expense of strategy.
Cash And Hedges
We provide a range for cash and hedges. Most investors would be in the middle of the ranges. As such, they would not need to make any change. When a change is given only at the edges of the ranges, only the most active investors need to make a change.
Arora’s 12th Law
Arora’s 12th Law is applicable here: To be successful at investing and trading, flow with the new data, and stay nimble.
Bullet Proof Your Portfolio And Increase Your Returns
We consistently see that private investors, money managers, and investment advisors who have attended the Bullet Proof Your Portfolio and Increase Your Returns seminar do significantly better compared to those who have not attended the seminar.
Here are the four main reasons why this consistently happens to investors who attend the seminar:
- They start understanding the true nature of the markets.
- Develop a better framework to handle the true nature of the market.
- Tend to act with more conviction and with more comfort.
- Tend to develop better control over their emotions.
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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.
