This post was published in The Arora Report paid feeds as Afternoon Capsule.
To gain an edge, this is what you need to know now.
New Strong Bubble Data Point
Our subscribers often ask us what to watch to know when the bubble in financial assets is coming to an end. There is a multitude of data to watch. One important data point is the auction of long dated Treasury bonds when the quantity is large.
Today $38 billion of 10-year Treasury note auction took place. $38 billion is a large amount for this type of auction. Here are the results:
- High yield: o.677%
- When Issued: 0.681%
- Bid-to-cover: 2.41
- Indirect bid: 65.4%
- Direct bid: 14.7%
In plain English, the foregoing means the action went very well — funds were tripping over themselves to loan the government the money at a very low rate. If you were approaching the end of the bubble, yield would spike up and bid-to-cover ratio would be lower.
Wall Street ran up the market by claiming last week that this week coronavirus cases would drop and then shouting from the rooftops about coronavirus cases about to drop on Monday and Tuesday. The data from today shows that in several locations, cases are going up again.
Of interest is that the market responses to the positive news of coronavirus even when statistics are manipulated to present an incorrect picture, but the market ignores when coronavirus news is negative. Some gurus have said that the market is ignoring coronavirus. Data shows that such gurus are not right. The market is only ignoring the negative news on coronavirus but is buying on positive coronavirus news.
The momo crowd money flows since the Morning Capsule are positive.
Smart money flows since the Morning Capsule are neutral.
Short squeeze money flows are positive.
A Special Note To New Subscribers
Note the smart money behavior. Smart money tends to sell into strength on strong up days.
New subscribers should consider adopting smart money’s way of investing and trading.
Sentiment is very positive.
Sentiment is a contrary indicator at extremes. In plain English, this means that when sentiment becomes extremely positive it is time to sell and when sentiment becomes extremely negative it is time to buy.
The momo crowd money flows in gold are like a yo-yo since the Morning Capsule.
Smart money flows are neutral in gold since the Morning Capsule.
The momo crowd money flows in oil are positive since the Morning Capsule.
Smart money flows in oil are neutral since the Morning Capsule.
Buy Zones And Buy Now Ratings
Those who meet the protection band criteria as outlined in the Morning Capsule and are underinvested may consider continuing to lightly scale in based on buy zones and ‘Buy Now’ ratings of individual securities.
Any buying should be strategic and not tactical unless there are specific recent signals given.
It is a mistake to buy all in at one time. Please see Trade Management Guidelines.
Consider not nibbling at this time if you are under invested and there is significant room in your protection band criteria.
Nibbling refers to buying very small quantities, often in existing long term positions with the intention of exiting these additions in the short term. It is similar to trade around positions but without specific signals.
There appear to be buy on close orders.
There is merit to watching the pattern of market on close orders as they represent the day’s dominant net cumulative activity by many professionals and funds.
The Afternoon Capsule is not published daily but only when conditions warrant it. The content below is unchanged and is to be used for reference as needed.
Many investors are spoiled due to the decade long bull market. Many believe it is very simple – be all in or be all out. Unfortunately, the last decade was an exception to the rule.
As the market is running up, investors who do not understand the true nature of the market are jumping in with both feet without appreciating the risks.
Risk and reward are two sides to the coin. It is important to consider both.
For your reference, we are pasting the following from your Getting A Running Start Guide,
Everything should be made as simple as possible but not simpler.
Strategic Vs. Tactical
All investors should consider bringing more sophistication to their investing and trading. It is important to clearly understand the difference between strategic and tactical calls. For your convenience, a prior post is pasted below.
ASK ARORA: CASH AND HEDGES: UNDERSTANDING THE DIFFERENCE BETWEEN STRATEGIC AND TACTICAL CALLS
Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.
We have written previously about the importance of understanding the difference between strategic calls and tactical calls.
We welcome your comments and questions. The law does not allow us to answer them individually. However, when a large number of subscribers ask similar questions, a post is done. Typically starting with Ask Arora.
Based on the questions received this morning, a refresher on understanding the difference between strategy and tactics is in order.
Strategy defines medium to long term plan to achieve the highest risk adjusted returns.
Tactics are small adjustments within the strategy to further enhance risk adjusted returns.
If You Could Pick Only One
We recognize that all investors have individual preferences. If you could pick only one, consider focusing on the strategy. Never focus only on tactics at the expense of strategy.
The strategic call at this time is to stay cautiously bullish. The logic is very straightforward. Consider the following key points:
- The stock market has been going straight up for 10 years. It is late cycle. Portfolios have to be organized for the late cycle. Risks are much higher in the late cycle compared to when a bull market is in an early stage.
- The world is awash in debt. The sovereign debt owed by governments and corporate debt owed by zombie corporations has dramatically increased. It is a bubble that is getting bigger waiting for a pin to prick it.
- Valuations are expensive.
- A big reason for levitation of the stock market is money printing by the central banks. This can continue for a long time but not forever.
Tactical calls are simply short term adjustments. For example, a tactical call to decrease cash and hedges is based on the following:
- Weak hands temporarily washed out overbought condition.
- Overbought condition temporarily relieved.
- Sentiment backing off from almost extreme bullish levels.
- Overall better earnings.
Cash And Hedges
We provide a range for cash and hedges. Most investors would be in the middle of the ranges. As such, they would not need to make any change. When a change is given only at the edges of the ranges, only the most active investors need to make a change.
Arora’s 12th Law
Arora’s 12th Law is applicable here: To be successful at investing and trading, flow with the new data and stay nimble.
Bullet Proof Your Portfolio And Increase Your Returns
We consistently see that private investors, money managers and investment advisors who have attended the Bullet Proof Your Portfolio and Increase Your Returns seminar do significantly better compared to those who have not attended the seminar.
Here are the four main reasons why this consistently happens to investors who attend the seminar:
- They start understanding the true nature of the markets.
- Develop a better framework to handle the true nature of the market.
- Tend to act with more conviction and with more comfort.
- Tend to develop a better control over their emotions.
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