By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Unintended Consequences
Please click here for a chart of German bunds (BUND). Bunds are German government bonds.
Note the following:
- It is important for investors to set their politics aside, go to neutral to examine events without bias.
- The law of the unintended consequences of change is finally hitting the stock market in the U.S. in the early trade.
- The chart illustrates the law of unintended consequences.
- The chart shows when the Trump Zelenskyy confrontation occurred at the White House.
- The chart shows a big drop in bunds. The drop in bunds is the worst since 1990.
- Yields move inverse to the bonds. When bonds fall, yields rise. Yields across Europe are spiking.
- It is not only Europe, yields in Japan hit a near 16-year high. This is benefiting the ZYX Allocation Model Portfolio through the yen ETF position (FXY).
- Higher yields across the globe are now migrating to the U.S.
- ISM data yesterday was strong, further putting pressure on yields in the U.S.
- In the early trade, there is selling in the U.S. stock market as investors wake up to rising yields.
- The reason The Arora Report was enormously successful during President Trump’s first term was that we learned to focus on what Trump was trying to do and not on his methods. For those wanting next level information, there is a podcast in Arora Ambassador Club. Irrespective of your opinion of Trump’s method, Trump was trying to pressure Ukrainian President Zelenskyy towards peace over many more years of war. Little did Trump know of the unintended consequences
- The unintended consequence of the Trump Zelenskyy confrontation was that alarm bells rang in Germany. The alarm bells were that the U.S. is no longer a reliable ally under President Trump. No German would want President Trump from the U.S. to dictate that Germany gives concessions to Russia in the event of a war with Russia.
- Since World War II, Germany has been highly dependent on the U.S. for defense. Everything changed overnight after the Trump Zelenskyy confrontation. Germany realized that they have to be able to defend themselves independent of the U.S. The problem Germany faces is its tradition of austerity and constitutional limits.
- As a member of The Arora Report, you were ahead of the game. We previously wrote:
Historically, the German government has been the most fiscal responsible in the entire world.
Friedrich Merz, Chancellor-In-Waiting, is proposing to amend the constitution to exempt defense spending from fiscal spending limits.
- Merz said, “In view of the threats to our freedom and peace on our continent, the rule for our defence now has to be ‘whatever it takes.” In terms of defense spending and austerity, the biggest change has happened in Germany almost overnight since World War II.
- It is the additional defense spending that is hitting the bund.
- In The Arora Report, there is a prior signal on European defense ETF (EUAD) and English defense company BAE Systems (BAESY).
- In a dramatic turn of events, France is proposing to use French nuclear weapons to defend Europe in order to reduce reliance on the U.S.
- The foundations of the highly successful ZYX Change Method for Investing and Trading as well as the adaptive ZYX Asset Allocation Model are based on Theory ZYX. The original creator of Theory ZYX was Nigam Arora. For those who want next level information, consider reading the book “Theory ZYX of Successful Change Management: A Definitive Guide to Reach the Next Level.” Note, that the book is about creating, managing, and understanding change. It is not a stock market book.
- This morning the volatility is being illustrated by the jobless claims data. Previously, we shared with you last week’s data was weaker. The just released data is stronger. Initial jobless claims came at 221K vs. 234K consensus.
- The official jobs report will be released tomorrow at 8:30am ET and may be market moving.
- 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 negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are negative 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) 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 *** 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 up, and bonds are ticking down.
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 5788 as of this writing. S&P 500 futures resistance levels are 5926, 6017, and 6131: support levels are 5748, 5622, and 5500.
DJIA futures are down 383 points.
Gold futures are at $2915, silver futures are at $32.98, and oil futures are at $66.81.
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.
