By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Quantum Risk To Bitcoin
Please click here for a chart of bitcoin (BTC.USD).
Note the following:
- Expectations were for bitcoin to move to $125,000 after it crossed $100,000. Instead the chart shows a big red candle and bitcoin falling below $100,000. The trigger for the fall was two fold:
- Developments in Syria. Please see yesterday’s Morning Capsule for details. Even though bitcoin promoters claim vigorously that bitcoin is a hedge against geopolitics, the hard data is that bitcoin is not a hedge and is negatively impacted by geopolitics. This is exactly the opposite of how gold behaves. Gold is a hedge. It reacts positively to geopolitical risk.
- A major advance in quantum computing
- The major advance in quantum computing is best described in Google CEO Sundar Pichai’s words. Pichai said, “Introducing Willow, our new state-of-the-art quantum computing chip with a breakthrough that can reduce errors exponentially as we scale up using more qubits, cracking a 30-year challenge in the field. In benchmark tests, Willow solved a standard computation in <5 mins that would take a leading supercomputer over 10^25 years, far beyond the age of the universe(!).”
- At The Arora Report, we have long known and previously conveyed that advances in quantum computing are a risk to bitcoin. In plain English, without getting into the weeds, given enough computing power, bitcoin security can be broken to steal bitcoins. Yesterday, it appears that some bitcoin whales sold bitcoin to unsuspecting retail investors on the news of the advance in quantum computing.
- With one notable exception, bitcoin whales appear to have been systematically engaged in slowly converting their bitcoins to dollars because they understand the long term risks. For this reason, yesterday’s move was inline with their pattern of selling bitcoin into the strength.
- In contrast to bitcoin whales, the higher bitcoin goes, the more aggressive retail buyers become. The reason is that retail buyers are primarily driven by momentum, do not take risks into account, and have drunk the Kool Aid of bitcoin promoters.
- In The Arora Report analysis, bitcoin is safe for now. Even the best quantum computers do not have the capability anywhere near what is needed to break bitcoin security.
- For most bitcoin retail investors, it is good enough that bitcoin is safe for now. However, prudent investors should ask how long bitcoin is safe. In The Arora Report analysis, there is a high probability that bitcoin is safe for the next three to seven years.
- There is time for several steps to be taken to attempt to quantum-proof bitcoin. However, such steps will be disruptive and may not be entirely successful.
- Quantum computing also poses a risk to online banking and other internet transactions.
- Prudent investors need to know that a fierce battle is raging to advance quantum computing. In the battle, the U.S. is on one side, and China and Russia are on the other side. Typically, quantum computing advancements in the U.S. are highly publicized. However, it appears that advancements in China and Russia are kept secret for national security reasons.
- Thinking clearly and objectively about it, with enough information, you will readily conclude that the proposed plan for the U.S. government to buy bitcoins will effectively transfer money from U.S. taxpayers to bitcoin holders, including those in Russia and China. For those wanting to develop a further understanding, listen to the podcast titled “OUT OF THIS WORLD BITCOIN PLAN EMERGES.”
- Imagine a nightmare scenario where money is transferred from U.S. taxpayers to bitcoin holders. China and Russia make rapid breakthroughs in quantum computing. Chinese and Russian state actors steal bitcoin bought by the U.S. government.
- In spite of the foregoing, money is to be made in bitcoin. Stay alert by staying tuned to the Morning Capsules and listening to podcasts in Arora Ambassador Club. Also, it is imperative to have appropriate risk control measures in place. For risk control measures, please see the Trade Management Guidelines.
- Regarding the stock market, the breadth in the S&P 500 has been negative for six days. This is the longest stretch of negative breadth since December 2018. In December 2018, the Fed was beginning to raise rates, and the stock market was falling. The stock market’s fall was subsequently arrested when Powell’s spine weakened due to Trump’s criticism, and Powell reversed the policy to comply with Trump’s wishes.
- In The Arora Report analysis, the negative breadth is the result of money flowing out of stocks into cryptos.
- In The Arora Report analysis, in the longer term, stock investors need to be concerned that Trump’s administration’s free reign crypto policies may result in money moving out of productive assets such as stocks and into cryptos. Change often has unintended consequences.
- 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Apple (AAPL), Alphabet (GOOG), Meta (META), and Tesla (TSLA).
In the early trade, money flows are neutral in Amazon (AMZN) and Nvidia (NVDA).
In the early trade, money flows are negative in Microsoft (MSFT).
In the early trade, money flows are neutral in S&P 500 ETF (SPY) and 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) stocks 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.
Very Very Short-Term Indicator
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.
Gold
The momo crowd is *** gold in the early trade. Smart money is *** gold in the early trade.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is *** oil in the early trade. Smart money is *** oil in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is under $100,000. See above for the latest developments.
Markets
Interest rates are ticking up, and bonds are ticking down.
The dollar is stronger.
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 6069 as of this writing. S&P 500 futures resistance levels are 6131 and 6256: support levels are 6017, 5926, and 5748.
DJIA futures are down 68 points.
Gold futures are at $2704, silver futures are at $32.63, and oil futures are at $68.52.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The 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.
