By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Deploy Cash And Reduce Hedges
In addition to Trump winning the presidency, here are the key points:
- Republicans have won control of the Senate.
- Mainstream media is calling control of the House too close to call. However, betting markets are at a 90% probability of Republicans winning the House.
- If Republicans win the House, there will be a complete red sweep, allowing Trump to more easily implement his agenda.
- Trump is on track to win the popular vote. If Trump wins the popular vote, he will use that to overcome objections from Democrats.
- The prevailing wisdom is that Trump’s agenda will be highly inflationary. However, in The Arora Report analysis, there are several things that Trump can easily do to prevent inflation from surging again while growing the economy and bringing manufacturing back to the U.S.
- On the other hand, if Trump embarks on a $2T cut in the Federal budget as he and Elon Musk said on the campaign trail, there is a 70% probability of a recession and the stock market falling 20% – 30%. Trump has said that he would appoint Musk as the efficiency czar. However, the probability of Trump embarking on such a program that he campaigned on is low.
- In The Arora Report analysis, investors will need to pay attention to how Trump implements his agenda. The method of execution can be the difference between a 20% rise in the stock market versus a 20% drop in the stock market.
Consider deploying cash and reducing hedges. Consider making these moves slowly, taking advantage of opportunities that the market may present by scaling in. Please see Trade Management Guidelines to learn how to scale in.
For details of the changes to cash and hedges, please scroll down to the section below titled “Protection Band And What To Do Now.”
Opportunities
Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).
Note the following:
- The chart shows in the early trade the stock market is technically breaking out. We will be carefully watching to see if the breakout is sustained or if it fails.
- RSI on the chart shows there is room for the stock market to run higher.
- Investors need to be cognizant that after the initial euphoria of Trump’s win wears off, there may be a ‘sell the news’ reaction.
- In The Arora Report analysis, if there is a late ‘sell the news’ reaction, the dip should be bought.
- Here are the money flows in various asset classes in the early trade after Trump’s victory:
- Extremely positive in the dollar
- Extremely positive in stocks
- Very positive in bitcoin
- Extremely negative in bonds
- Negative in gold
- Negative in oil
- Instead of acting out of emotion, consider taking a measured approach. There are many short term opportunities, but they are suitable only for aggressive investors. There have been a number of posts in the Real Time Feeds giving signals from both the long and short sides. If you are not aggressive, be patient; there will be plenty of opportunities for investors who are not aggressive.
- In addition to short term opportunities, plenty of long term opportunities are developing. There is no need to rush for long term opportunities. Consider being patient and waiting for dips in the buy zones.
- The FOMC is meeting. The Fed decision is ahead and may have a significant impact on the markets.
- 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 Amazon (AMZN), Alphabet (GOOG), Nvidia (NVDA), Microsoft (MSFT), and Tesla (TSLA).
In the early trade, money flows are neutral in Apple (AAPL).
In the early trade, money flows are negative in Meta (META).
In the early trade, money flows are extremely positive 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
API crude inventories came at a build of 3.132M barrels vs. a consensus of a build of 1.8M barrels.
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 seeing buying. Crypto bulls are targeting $100,000 bitcoin in a short time.
Markets
Interest rates are spiking, and bonds are down over 1%.
The dollar is up about 1.8%.
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 5928 as of this writing. S&P 500 futures resistance levels are 6017, 6131, and 6256 : support levels are 5926, 5748, and 5622.
DJIA futures are up 1212 points.
Gold futures are at $2672, silver futures are at $31.25, and oil futures are at $70.12.
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.
