BUFFETT HOLDING RECORD CASH, VICIOUS SHORT SQUEEZE RESPONSIBLE FOR LARGE STOCK GAINS

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By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

Change in 60/40 Portfolio

There is a change in the 60/40 Portfolio.  Please scroll down for details.

Buffett Cautious

Please click here for a chart of Berkshire Hathaway stock (BRK.B).

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of BRK.B stock is being used to illustrate the point.
  • The chart shows the stock of Warren Buffett’s company Berkshire Hathaway broke out earlier this year.
  • The chart shows that the breakout failed.
  • The chart shows a big rally in BRK.B stock last week.
  • The latest report shows that Buffett is holding record cash of $157B.
  • At a time when Buffett is holding record cash, his stock portfolio shrank from $353B at the end of the prior quarter to $319B at the end of the last quarter.
  • Buffett’s major holdings, Apple (AAPL), American Express (AXP), and Coca-Cola (KO), all showed losses.  You will benefit from analysis of all 41 stocks in Buffett’s portfolio.  The easiest way is to listen to the podcast series analyzing all 41 stocks in Buffett’s portfolio in Arora Ambassador Club.
  • You may be wondering where Buffett is holding his cash.  He is holding his cash in T-bills.  Holding cash in T-bills has been The Arora Report’s recommendation.  Please see the “Protection Band And What To Do Now” section below. 
  • Thank you for all of your questions wanting to know why the stock market rally was so explosive last week.  Here is your answer.  Hedge funds had a record negative positioning in Treasuries.  When Treasuries moved higher in response to three macro events that we shared with you in the Capsules last week, a massive short squeeze in Treasuries took place.  The movement in Treasuries, in turn, caused the largest rally in stocks.  Many of you are also asking for an in-depth podcast on this subject as many investors believe they will benefit from a better understanding.  We agree.  We are starting work on a podcast on this subject.  The podcast will be available in Arora Ambassador Club.
  • 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.
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South Korea Bans Short Selling

South Korea has banned short selling until June 2024.  This has triggered a massive rally of 5.7% in Korean stocks.  There may be a good trade developing here.  There will be a post in ZYX Emerging.  ZYX Emerging has continuously covered Korea for 16 years.

Japan

Stocks in Japan rose 2.4% as investors believe that Bank of Japan (BOJ) policies will cause money to flow out of the U.S. and into Japan.  Two Japan ETFs are in ZYX Allocation.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Tesla (TSLA).

In the early trade, money flows are negative in Apple.

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.

Gold

The momo crowd is *** gold in the early trade.  Smart money is *** in the early trade.

For longer-term, please see gold and silver ratings.

Oil

Saudi Arabia is extending its production cuts. 

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 range bound.

Markets

Our very, very short-term early stock market indicator is ***.  Whichever direction the market starts moving, Wall Street machines will jump on in that direction, exaggerating the move.  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.

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Interest rates are ticking up, and bonds are ticking down.

The dollar is range bound.

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.

Gold futures are at $1993, silver futures are at $23.29, and oil futures are at $81.90.

S&P 500 futures are trading at 4384 as of this writing.  S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

DJIA futures are up 31 points.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash or Treasury bills 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.

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.

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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 seven 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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This post was just published on ZYX Buy Change Alert.

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Picture of Nigam Arora

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.

Picture of Dr. Natasha Arora

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.

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