By Nigam Arora
To gain an edge, this is what you need to know today.
Bonds In Danger Zone
Please click here for a chart of 20+ year Treasury bond ETF (TLT).
Note the following:
- The chart shows that TLT has fallen into the Arora danger zone. As a member of The Arora Report, you have been ahead of the curve. You have known about the Arora danger zone for a while.
- Prudent investors should watch to see if TLT snaps out of the danger zone or falls farther into the danger zone.
- In The Arora Report analysis, smart money is adjusting stock market allocations based on the move in bonds. You have been ahead of the curve as this was already taken into account in the Arora Protection Band. On the flip side, the momo crowd continues to be oblivious, and momo money flows continue to indicate front running earnings season by buying AI stocks.
- Investors should carefully watch today’s $44B seven year Treasury auction.
- In The Arora Report analysis, yesterday’s five year Treasury auction was weak. Here are the details:
- $70B 5 year Treasury note auction
- High yield: 5.033%
- Bid-to-cover: 2.21
- Indirect bid: 54.3%
- Direct bid: 29.9%
- Impacting bonds is the development in Japan from last week. Again, as a member of The Arora Report, you have been ahead of the curve. From last week’s Morning Capsule:
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The move in the yen is creating a policy headache for the U.S.
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Japan is a large holder of U.S. Treasuries. To protect the yen, Japan may need to sell Treasuries so that it has dollars to intervene in the forex market. Such a selling will increase yields in the U.S. Yields are already rising in the U.S. creating headaches and leading the Fed to raise interest rates for the first time since July 2023.
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There is risk to the U.S. stock market from the carry trade, in addition to the risk from rising yields emanating from Japan. In the carry trade, funds have borrowed hundreds of billions of dollars in Japan to invest in the U.S., primarily in the AI trade.
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- Japan remains the largest foreign holder of U.S. Treasuries, but its holdings have fallen to $1.104T from $1.186T at the end of 2025 and $1.239T in February. It is a $135B retreat from the peak. August country level holdings have not yet been released.
- Japan’s broader capital flow data point to Japanese investors being net sellers of foreign securities. Through August 22, Japanese investors had been net sellers of ¥3T in foreign bonds. However, the data encompass overseas debt generally and do not identify how much, if any, came from the sale of Treasuries.
- Japan does not need to dump Treasuries to drain global liquidity. Here is The Arora Report analysis:
- The foregoing data should not be considered as evidence that Japan is dumping existing Treasury holdings. The important issue is the marginal buyer.
- As Japanese bond yields rise, Japanese institutions have less incentive to send the next dollar abroad.
- Japan does not need to sell its existing Treasury holdings to push U.S. yields higher. It only needs to become less willing to buy the next Treasury at the old yield.
- Higher Treasury yields increase the cost of capital and the discount rate applied to future AI earnings.
- Overnight, the yield on the 10 year Japanese bond reached its highest level since 1996.
- Initial jobless claims came at 197K vs. 202K consensus. The data indicates the jobs picture remains strong.
- From last Friday to Tuesday, the stock market ran up, in part, on oil hopium. This morning oil hopium is fading. You were ahead of the curve as we have been sharing with you that the oil hopium was premature.
- On Tuesday, we wrote:
Yields are slipping as oil pulls back. Oil is pulling back on Saudi Arabia restarting the East-West Pipeline. Prudent investors should note the pipeline is pumping at a low rate and is vulnerable to Houthi attacks.
- Overnight, Houthis fired six ballistic missiles on Saudi Arabia.
- On the positive side, President Xi is in Washington DC. The U.S. and China have extended the trade truce to January 10.
- 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 large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are neutral in Apple (AAPL).
In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Tesla (TSLA).
In the early trade, money flows are mixed 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. 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 like *** in gold in the early trade. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is *** 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 *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is seeing selling.
Markets
Interest rates are ticking down, and bonds are ticking up.
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 7736 as of this writing. S&P 500 futures resistance levels are 7795, 7900, 8000 : support levels are 7733, 7626, and 7541.
DJIA futures are down 122 points.
Gold futures are at $4284, silver futures are at $64.13, and oil futures are at $93.70.
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.
