By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Deploy Cash And Reduce Hedges
Please see the Protection Band And What To Do Now section below. The change is triggered by the prospect of China tariffs being reduced to 10%.
Great Deal For China
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 a big rally in the stock market in the early trade on the news of the China deal.
- The chart shows the stock market has broken through zone 2, which was previously a resistance zone. Zone 2 is now a support zone.
- The chart shows the stock market jumped to the breakout line. The stock market is likely to experience some resistance at the breakout line, but this resistance is very weak.
- The chart shows the stock market has crossed back above the 200 day moving average. This will bring aggressive buying from the legion of investors who believe the myth of the 200 day moving average.
- RSI on the chart shows that the stock market is barely overbought and has room to run to the upside.
- Here are the key points about the China deal:
- Total tariffs will be reduced from 145% to 30%.
- Prudent investors should note that as late as last week, President Trump was floating the idea of reducing China tariffs to 80%.
- Prudent investors should also note that on the campaign trail, President Trump promised 60% tariffs on Chinese goods.
- 30% tariffs are made up for 10% reciprocal tariffs and 20% fentanyl tariffs.
- Treasury Secretary Scott Bessent says that 20% fentanyl tariffs could be removed if China acts.
- The deal is for 90 days. Parties will negotiate further.
- The summary of the foregoing is that China tariffs are likely to be only 10% compared to President Trump’s campaign trail promise of 60%.
- In The Arora Report analysis, with only 10% tariffs on China, President Trump will not meet any of his following stated goals:
- Eliminating the trade deficit
- Raising trillions of dollars in tariffs to offset income tax
- Bringing significant manufacturing to the U.S.
- Further, in The Arora Report analysis, President Trump making a U-turn is not good for the U.S. in the very long term. However, in the short term, this is good for the U.S. economy and stock market.
- Peak tariff uncertainty is over, but peak economic uncertainty is not.
- Prudent investors should note that yields are rising again with 10 year Treasuries reaching 4.46%.
- In The Arora Report analysis, if this deal holds, it is the greatest deal China could have possibly expected. From an investment perspective, there will be merit in due course to buy Chinese stocks. Chinese stocks are very inexpensive. Chinese stocks trade at a trailing PE of 14.34 and forward PE of 13.05. As a reference, U.S. stocks trade at a trailing PE of 24.17 and forward PE of 20.74. You will see signals in due course. Most of the signals will be in ZYX Emerging.
- Adding to the positive sentiment is that nuclear armed neighbors India and Pakistan have agreed to a ceasefire. The stock market in India is up 3.7%. There is merit to starting or adding to India positions on dips. There is India focused fund FFXDF in the ZYX Buy Core Model Portfolio. There is also a trade around position on FFXDF. India ETFs EPI, GLIN, and SMIN are in ZYX Emerging. For those wanting next level information, a podcast titled “Strategic Opportunity In India: Growth, Demographics, And AI” is in post-production and will be available in Arora Ambassador Club.
- Pharmaceutical stocks such as Eli Lilly (LLY), Novo Nordisk (NVO), Merck (MRK), Pfizer (PFE), and Bristol-Myers Squibb (BMY) are lower on President Trump’s plan to lower drug prices. There is a short position in NVO in ZYX Short.
- 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
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are 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. 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
After the India Pakistan ceasefire and China trade deal, there is less need for safe havens such as 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
Due to China tariffs being dropped to a very low level, global growth is likely to be higher than anticipated as late as Friday. Higher growth means more demand for 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 buying but there is some disappointment that whales did not take advantage of low liquidity over the weekend to run bitcoin over $108K.
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 5853 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 up 1033 points.
Gold futures are at $3239, silver futures are at $32.78, and oil futures are at $63.22.
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.
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.
