October Is The Most Volatile Month Of The Year – AI Frenzy To Be Tested, Fed Speak, Bitcoin Squeeze

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

Volatility Ahead

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

Note the following:

• The government shutdown is averted for now. The can has been kicked down the road until November 17.
• Sunday evening, when futures opened, the momo crowd bought aggressively on the government not shutting down. However, as of this writing, futures have not only given up their gains but have turned negative.
• The chart shows the stock market is in the top support zone. In The Arora Report analysis, the stock market is waiting for a trigger to move out of the top support zone.
• In The Arora Report analysis, October is likely to test the enthusiasm for AI stocks.
• October is historically the most volatile month of the year. Stock market crashes tend to happen in October. Often, October lays the groundwork for the market mechanic for year end chase to drive the stock market higher in November and December. However, keep in mind that in some years like 2022, the chase is to the downside. When investors develop in-depth knowledge of market mechanics, it gives them an edge. About two thirds of the market rise this year has been due to market mechanics. For those wanting next-level information, a podcast titled “Market Mechanics: Gain An Edge From Year End Chase” is in post-production. The podcast will be available in Arora Ambassador Club.  
• The year end chase being to the upside or to the downside this year will largely depend on the following:
  • Upcoming earnings
  • Momentum in AI stocks
  • New economic data
  • Interest rates
  • November FOMC meeting
• RSI on the chart shows that the stock market remains oversold. Oversold markets tend to bounce.
• ISM Manufacturing Index is to be released at 10am ET. The consensus is 47.8%. If the actual number released is far from the consensus, it will move the stock market.
• Jamie Dimon, CEO of JPMorgan Chase & Co JPM, is speaking at 10am ET. In The Arora Report analysis, Dimon’s speech is important. As the head of the largest U.S. bank, he has great visibility into the state of the economy. Dimon recently warned about higher interest rates and lower bonds. His warning was in line with one of The Arora Report scenarios but not in line with the consensus in the stock market. Prudent investors should carefully watch to see what he says about interest rates.
• Fed speak is ahead and maybe market moving:
  • Powell and Harker are participating in a roundtable at 11am ET.
  • Mester is speaking at 7:30pm ET.
• Today is the beginning of the fourth quarter. Blind money flows into Wall Street on the first two days of the quarter without any analysis and irrespective of market conditions. Most of blind money is invested in the afternoon.
• Wall Street front runs the blind money by buying certain stocks in the morning and then selling them to blind money in the afternoon at a profit. Of course, blind money is oblivious because they do not care what price they pay.
• 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.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc AAPL, Amazon.com, Inc. AMZN, Meta Platforms Inc META, Microsoft Corp MSFT, and NVIDIA Corp NVDA.

In the early trade, money flows are negative in Tesla Inc TSLA and Alphabet Inc Class C GOOG.

In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust 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 🔒 in the early trade. To see the locked content, please click here to start a free trial.

Gold

The momo crowd is selling gold in the early trade. Smart money is 🔒 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 buying oil in the early trade. Smart money is 🔒 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 surging on a short squeeze. Many investors were buying bitcoin on the prospect of a government shutdown. When a deal was struck in the house to keep the government open, short sellers jumped in hoping that bitcoin would fall. This is when the whales apparently decided to squeeze the shorts, causing a major run-up.  Bitcoin has now moved over $28,000.  

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.

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.

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.

The Arora Report is known for its accurate calls. The Arora Report correctly called the 2008 financial crash, the start of a mega bull market in 2009, the COVID crash, the post-COVID bull market, and the 2022 bear market.  Please click here to sign up for a free forever Generate Wealth Newsletter.