By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Money Flowing To Europe
Please click here for a chart comparing S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX), European defense ETF (EUAD), and Euro STOXX 50 ETF (FEZ).
Note the following:
- For the period shown on the chart, Europe has outperformed the U.S. stock market by 10.39%. The chart also shows European defense ETF (EUAD) has outperformed SPY by 22.12%.
- Money continues to flow from the U.S. stock market to European stock markets.
- We have previously shared with you the unintended consequence of the Trump Zelenskyy confrontation. This was a watershed moment unlike anything else since World War II. From an investment perspective, the confrontation was a trigger for money to start flowing out of the U.S. and into Europe.
- In The Arora Report analysis, increased defense spending in Europe is not a done deal, even though the stock market believes it is.
- Historically, Europe has had difficulty uniting behind increased defense spending. Further, in The Arora Report analysis, it must all start from Germany. The coalition of Friedrich Merz, Germany’s Chancellor-In-Waiting, proposes to increase defense spending and also create a $500B infrastructure fund. For certain reforms, it takes a two third majority in Bundestag. Support of the Greens may become important. However, the Greens have concerns due to the lack of climate protection measures in new spending.
- President Trump is not ruling out the possibility of a recession. Trump said, “I hate to predict things like that. There is a period of transition because what we’re doing is very big.”
- In the early trade, the U.S. stock market is seeing selling due to Trump’s remarks.
- The Arora Report’s prior call was to buy on Trump’s re-election, take partial profits from Christmas to New Years, and take more profits going into Trump’s inauguration. The Arora Report call has proven spot on.
- We have been sharing with you since November 2024 that when hopium met reality the stock market would have a problem. This is exactly what is happening right now.
- If the stock market falls further, momo crowd accounts will start getting more margin calls. Such margin calls will accelerate selling. Momo crowd accounts are already decimated because of their concentration in highly speculative stocks.
- 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.
China
For the first time in a year, inflation in China is below zero. Here are the details:
- CPI came at -0.2% month-over-month vs. -0.1% consensus and -0.7% year-over-year vs. -0.4% consensus.
- PPI came at -2.2% year-over-year vs. -2.0% consensus.
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) 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 *** in 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) saw selling yesterday. The dip is being bought.
Markets
Interest rates are ticking down, and bonds are ticking up.
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 5698 as of this writing. S&P 500 futures resistance levels are 5748, 5926, and 6017: support levels are 5622, 5500, and 5400.
DJIA futures are down 472 points.
Gold futures are at $2912, silver futures are at $32.99, and oil futures are at $67.53.
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.
