By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Trump Gambit
Please click here for a chart of bitcoin (BTC.USD).
Note the following:
- The chart shows that after the breakout above zone 1 (support), bitcoin has been consolidating in a narrow range.
- Typically, the bitcoin pattern shown on the chart leads to a pullback before a move higher. However, a new executive order that President Trump is about to sign has the potential to not only stop the pullback but push bitcoin higher. The first magnet for traders is $140K.
- President Trump’s executive order has the potential to push bitcoin to $250K and then potentially to $1M in the long term. By now, you may be asking what is President Trump about to do that is going to light a fire under bitcoin — President Trump appears to be ready to sign an executive order to open the floodgates of retirement money, including 401K money, to cryptos.
- To understand what President Trump is about to do, investors need to understand the history of retirement plans in the United States.
- Before 1963, retirement fund scandals were common, as there were not stringent federal requirements to protect workers’ retirement money. Many employers raided their pension funds for ulterior purposes and often mismanaged retirement funds that cost workers their retirement.
- The key catalyst came in 1963, when the Studebaker Auto Company collapsed, causing thousands of workers to lose their pensions. The Studebaker collapse and other scandals lead to Congress passing the Employee Retirement Income Security Act (ERISA).
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- ERISA established three standards:
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- Retirement plan sponsors have a fiduciary duty to act prudently in the best interest of participants.
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- Investment decisions must be made in a way that a prudent man would make to protect retirement funds.
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- Retirement plans must avoid concentration of assets in risky assets.
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- As crypto gained popularity, in 2022 the Department of Labor cautioned plan sponsors against including cryptos in 401K’s due to the high risk.
- President Trump is now set to issue an executive order directing regulators to remove barriers to retirement plan money, especially 401K money, to flow into cryptos.
- Prudent investors need to get ahead of the curve and understand that President Trump’s action will open the floodgates of 401K money to cryptos.
- Prudent investors also need to look ahead to midterm elections. In a midterm election, historically, the President’s party loses an average of 3.6 Senate seats and 28 House seats.
- Opening the floodgates of 401K money to crypto will strengthen the financial support the crypto industry has been providing to President Trump. The crypto industry provided more than $250M to support Trump’s campaign for re-election.
- Allowing cryptos in 401Ks will open up a new source of revenue for Wall Street firms, increasing support of Wall Street firms for Republicans in the midterm elections.
- Money is a big influence in U.S. elections. Prudent investors should expect many Democrats who have been resistant to cryptos to change their minds and jump on the crypto bandwagon to raise money for the midterm election.
- In The Arora Report analysis, here is a key question prudent investors need to ask: The prevailing wisdom is that cryptos can only go up, what happens if the prevailing wisdom turns out to be wrong and cryptos go down? If cryptos in 401K’s go up, it will certainly help Republicans in the midterm elections, but what happens if people lose money on cryptos in their 401K’s? If cryptos go down and people lose their retirement funds, will they blame President Trump and in hindsight, call this an imprudent policy?
- Allowing cryptos in 401K’s will also help the stock market as long as the prevailing wisdom that cryptos only go up proves correct.
- Should prudent investors be swept into the frenzy generated by the prevailing wisdom that cryptos only go up? In The Arora Report analysis, prudent investors need to remember that history has shown us the prevailing wisdom often turns out to be wrong.
- Prudent investors should pay special attention to Arora’s second law of investing and trading: “Nobody knows with certainty, what is going to happen next in the markets.”
- In The Arora Report analysis, there is merit to cryptos, but they should only be a very small part of the portfolio at this time. Bitcoin ETF (IBIT) is in the Core Model Portfolio of ZYX Buy and ZYX Allocation.
- University of Michigan Consumer Sentiment data will be released at 10am ET and may be market moving.
- Monthly options are expiring today. So far this week, option expiration has been exerting upside influence on the stock market.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the many unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are positive in S&P 500 ETF (SPY) and in 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) 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. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary 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.
Gold
The momo crowd is *** in the early trade. Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is *** in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is range bound.
Markets
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.
S&P 500 futures are trading at 6347 as of this writing. S&P 500 futures resistance levels are 6500 and 6700: support levels are 6256, 6131, and 6017.
DJIA futures are up 86 points.
Gold futures are at $3365, silver futures are at $38.75, and oil futures are at $67.13.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora Protection Band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash, Treasury bills, short term fixed income, 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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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.
