Growth Fears Seeping Into The Stock Market – Nvidia's Rubin And Rate Cut Hope Help The Stock Market

To gain an edge, this is what you need to know today.

Growth Fears

Please click here for an enlarged chart chart of SPDR S&P 500 ETF Trust SPY which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

  • The chart shows over 1% rally on Friday afternoon on rebalancing.
  • We wrote in yesterday’s Morning Capsule:

In The Arora Report analysis, the last hour rally was due to month end rebalancing. Often, the rally on rebalancing reverses.

  • The chart shows the giveback of the rebalancing rally’s gains, which is inline with historical patterns.
  • The chart shows Wall Street front running blind money.
  • The chart shows a rally in the afternoon on blind money buying. Blind money is invested in the afternoon.
  • The chart shows the selloff in the early trade today on growth fears rising out of yesterday’s ISM data.
  • ISM Manufacturing Index came at 48.7 vs. 49.6 consensus. A number less than 50 reflects economic contraction.
  • In The Arora Report analysis, ISM data is going against momo gurus hopes of no landing.
  • In The Arora Report analysis, after the weak ISM data the probability of a rate cut in September has increased to more than 50%. A higher probability of interest rate cuts helps the stock market go higher as long as the economy is not substantially weakening.  In The Arora Report analysis, the issue here is that ISM data indicates a weakening economy. A weaker economy hits earnings.  
  • The stock market is waiting for factory orders and the JOLTS-job openings report. Both will be released today at 10am ET.  In view of the growth fears, this data is taking on more importance than normal.
  • Rubin from NVIDIA Corp NVDA is helping the stock market stay up. From yesterday’s Morning Capsule:

We previously shared with you about Blackwell, the next generation chip platform for AI from Nvidia (NVDA). Now, NVDA is announcing the generation after Blackwell. It will be called Rubin.

  • Actual election results in India are not inline with exit polls. Modi will have the majority but will have less seats in the lower house of Parliament than the stock market expected. The Indian stock market is extremely volatile as a result. This is dampening the sentiment across the globe.
  • Blind money will be buying again today, providing support to the stock market.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Tesla Inc TSLA and NVDA.

In the early trade, money flows are neutral in Apple Inc AAPL.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN, Microsoft Corp MSFT, Alphabet Inc Class C GOOG, and Meta Platforms Inc META.

In the early trade, money flows are negative in S&P 500 ETF (SPY) and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade.  Smart money is inactive in the early trade.

Note for new investors: 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 selling gold in the early trade. Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV

Oil

The momo crowd is selling oil in the early trade.  Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is range bound.  Meme crowd buying is supporting bitcoin.

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 a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. 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.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.

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