By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
GDP Brings Buying
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows a drop in QQQ. The drop in QQQ was triggered by speculative sentiment pulling back. As a member of The Arora Report, you knew in advance that speculative sentiment could fall as a result of Tesla (TSLA) earnings.
- The chart shows that QQQ is approaching the support zone.
- RSI on the chart shows that QQQ is now oversold. Oversold markets tend to bounce.
- The chart shows that the volume was low on the selloff. This indicates a lack of conviction in selling.
- Especially hard hit in yesterday’s selloff were AI stocks as the AI frenzy cools.
- AI stocks that are semiconductor stocks are partially hedged in the portfolio. The plan is to take profits on hedges if these stocks fall further.
- AI stocks in the portfolio include Apple (AAPL), Analog Devices (ADI), Applied Materials (AMAT), Amazon (AMZN), Alphabet (GOOG), MongoDB (MDB), Meta (META), Microsoft (MSFT), Nvidia (NVDA), Micron (MU), NXP Semiconductors (NXPI), PG&E (PCG), Quanta Services (PWR), and Qualcomm (QCOM).
- At present, the AI stock with the best risk reward ratio is MSFT.
- For those interested in ETFs, ETFs in the Model Portfolio of interest are AIQ, SMH, and IYW.
- The AI ETF with the best risk reward ratio at present is AIQ.
- Keep in mind, risk reward ratios are dynamic and change – stay tuned to the Real Time Feeds.
- Since AI stocks have run up so much in 2024, even with yesterday’s selloff there is risk in buying AI stocks right here.
- Long time members may recall that The Arora Report was one of the first to identify the AI opportunity, and members bought AI stocks near the bottom in 2022 before the run up started. Those members are sitting on massive unrealized profits.
- Q2 GDP-Adv came at 2.8% vs. 1.9% consensus. This stronger than expected data is bringing buying into the stock market. The reason is that a part of the drop in the stock market yesterday was on concerns that the economy was weakening too fast.
- In The Arora Report analysis, investors should not be too enamored with buying on strong GDP data. The reason is that GDP is a lagging indicator. The Arora Report system that includes ZYX Change Method and ZYX Asset Allocation Model is based on leading indicators.
- Durable goods orders show weakness in transportation orders. Here are the details:
- Headline durable orders came at -6.6% vs. 0.4% consensus.
- Durable orders ex-transport came at 0.5% vs. 0.2% consensus.
- Initial jobless claims came at 235K vs. 240K consensus. Initial 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.
- The yen is rising on expectations that the Bank of Japan will raise rates. The rising yen is hammering gold, bitcoin, and oil. This is also bringing selling into the U.S. stock market as many funds borrow in yen and buy U.S. stocks. There is a position in yen ETF FXY in the ZYX Allocation Model Portfolio.
- 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.
Stunning Yen Rise
The Japanese currency yen is experiencing a stunning rise, reaching its highest level in two months against the dollar. The reason is an expectation that the interest rate gap between the U.S. and Japan will narrow.
First Ever Joint Air Threat
For the first time ever, two Chinese and two Russian aircraft operating together challenged U.S. aircraft in Alaska. This indicates that China and Russia sense weakness in the U.S. and are getting bolder.
The momo crowd is oblivious, but prudent investors should pay attention to the protection band – this is one of the many geopolitical situations that is taken into account when determining the protection band.
Surprise China Rate Cut
The People’s Bank of China (PBOC), in a surprise, cut the interest rate on one year loans by 20 basis points to 2.3%. This indicates that PBOC is stepping up to support China’s economy in the wake of slowing Chinese consumers.
Magnificent Seven Money Flows
In the early trade, money flows are positive in AMZN, META, and TSLA.
In the early trade, money flows are neutral in AAPL and MSFT.
In the early trade, money flows are negative in GOOG and NVDA.
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 *** 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
Gold is being hammered by the rising yen. Gold has fallen below the psychologically important level of $2400.
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
Oil is being sold on rising yen.
The momo crowd is *** oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Buying in bitcoin (BTC.USD) on the Trump strategic reserve rumor is being countered by rising yen bringing selling into bitcoin.
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 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.
Gold futures are at $2372, silver futures are at $27.77, and oil futures are at $76.56.
S&P 500 futures are trading at 5471 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 15 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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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.
