By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
The Plan
Please click here for a chart of 20+ year Treasury bond ETF (TLT).
Note the following:
- Going into the election, the most important chart is that of the bond market. The reason is the reaction to the election from the bond market is likely to be correct compared to the first reaction from the stock market.
- The chart shows the contrary Arora call that bonds would fall when the Fed cut interest rates by 50 bps. At the time of the contrary Arora call, everyone was predicting that bonds would go up.
- The chart shows that the Arora call has proven spot on.
- The chart shows that bonds are now at the bottom band of the top support zone.
- Consider keeping this chart handy and see if bonds rally above the top band of the top support zone or they break down and move towards the bottom support zone.
- In addition to understanding the chart of the bond market, the following is the essential foundation of how to capture opportunities after the election.
- Wall Street positioning. Positioning is an important Wall Street mechanic. For those wanting a deeper understanding, listen to the podcast titled “Market Mechanics: Positioning.”
- Retail investor positioning
- Your positioning
- Wall Street is positioned for the following:
- A significant rally in stocks, bonds, gold, and the dollar after the election
- Senate control switching from Democrats to Republicans
- House control switching from Republicans to Democrats
- An even probability of a Trump win or a Harris win.
- Here is the positioning of retail investors:
- Republican retail investors are heavily positioned in the Trump trade.
- Democrat retail investors are heavily positioned in the Harris trade.
- The problem with positioning of retail investors is that if their candidate wins, they will do fine. However, if the other candidate wins, they will incur massive losses. This is not the way to maximize the wealth you generate over your lifetime. It is important to keep your politics separate from your investing.
- In The Arora Report analysis, Wall Street is oblivious to the simple fact that the stock market has been front running the election.
- Historically, there is anxiety and a pullback before the election in September and October. Historically, when the election is over, the overhang of anxiety lifts irrespective of who wins, and the stock market rallies.
- This time is different because there has not been any anxiety, and there was not a pullback in September and October. The reason is that Wall Street has been front running the election.
- There is no recent historical precedent of Wall Street front running the election.
- Historically smart money uses a combination of hedging and lightening up positions before the election. This time is different in that smart money has been aggressively hedging, more than any other recent election, but has not been lightening up positions.
- Even though there is no precedent of election front running, there are hundreds of precedents of Wall Street front running less important events. A typical reaction after the event is over is to sell the news.
- In The Arora Report analysis, prudent investors should be aware that there is a fair probability of a sell the news reaction. However, the probability of a rally is higher because of the power of the momo crowd. Those who want deeper knowledge may consider listening to the podcast titled “Front Running The Election – Money Flows And Sharp Rise In Debt.”
- Going into the election, investors should be very cognizant of the positioning of their own portfolios. The Arora Report portfolios are well balanced between the Harris trade and the Trump trade.
- The Arora Report portfolios are also sufficiently protected with the protection band and there is sufficient cash to take advantage of new opportunities. Investors who are not holding enough cash will not be able to take advantage of new opportunities.
- 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 Alphabet (GOOG), Microsoft (MSFT), Meta (META), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are neutral in Amazon (AMZN) 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.
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 *** 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
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 5756 as of this writing. S&P 500 futures resistance levels are 5926 and 6017: support levels are 5748, 5622, and 5500.
DJIA futures are up 19 points.
Gold futures are at $2753, silver futures are at $32.93, and oil futures are at $71.84.
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.
