Mixed Jobs Report

Please click here for an enlarged chart of Invesco QQQ Trust Series 1 (NASDAQ:QQQ).

Note the following:

• The chart shows that tech stocks are now just under the top band of zone 1 (support).
• RSI on the chart shows that tech stocks are oversold.  Oversold markets tend to bounce.  This is especially important because positive seasonality is ahead.
• The momo crowd immediately bought stocks after the release of the economic data, but, as of this writing, the rally failed.
• The November jobs report was mixed.  Here are the details:
  • Non-farm payrolls came at 64K vs. 30K consensus.
  • Non-farm private payrolls came at 69K vs. 34K consensus.
  • Unemployment rate came at 4.6% vs. 4.4% consensus.
  • Average work week came at 34.3 vs. 34.3 consensus.
  • Average hourly earnings came at 0.1% vs. 0.3% consensus.
• Important takeaways:
  • Average hourly wage growth is anemic.  This indicates that many people are getting raises of about only 1%. 
  • Unemployment has risen.  This is especially important because the Fed is laser focused on the unemployment rate. 
  • Job growth remains solid. 
• Prudent investors closely watch retail sales data as the U.S. economy is 70% consumer based.  Retail sales are solid with the exception of autos.  Here is the latest retail sales data.
  • October headline retail sales came at 0.0% vs. 0.3% consensus.
  • October retail sales ex-auto came at 0.4% vs. 0.3% consensus.
• In our analysis, after this data, the probability of the Fed cutting interest rates in January is 20%.  Of course, inflation data is ahead and may change the picture. 
• The U.S. has offered Ukraine a security guarantee.  This could bring the end of the Ukraine war closer.  Defense stocks and oil are seeing selling in the early trade.
• In an important development, Visa Inc (NYSE:V) will use USDC stablecoin for a pilot stablecoin settlement program.  USDC is issued by Circle Internet Group Inc (NYSE:CRCL).

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  For this reason, it is important to pay attention to early money flows in the Mag 7 stocks on a daily basis.

In the early trade, money flows are positive in NVIDIA Corp (NASDAQ:NVDA).

In the early trade, money flows are neutral in Amazon.com, Inc. (NASDAQ:AMZN).

In the early trade, money flows are negative in SPDR S&P 500 ETF Trust (NYSE:SPY) and Nasdaq 100 ETF (QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (USO).

Bitcoin

Bitcoin (CRYPTO: BTC) is range bound with downward bias.

What To Do Now

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 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.

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