By Nigam Arora
To gain an edge, this is what you need to know today.
Short Squeeze
Please click here for a chart of gold futures (GC_F).
Note the following:
- The chart shows gold rocketed in a vicious short squeeze.
- The chart shows when FOMC released its statement and left interest rates unchanged.
- The chart shows when Fed Chair Powell spoke.
- Wall Street was positioned for gold to pull back if Fed Chair Powell was hawkish. In the press conference, Fed Chair Powell was decidedly hawkish. Most importantly, Fed Chair Powell, for the first time this cycle, echoed what has been The Arora Report’s view for a while about the neutral rate. This is not a surprise to long time members of The Arora Report as for the last 19 years, The Arora Report has been consistently ahead of the Fed, often with calls that are contrary at the time they are made but ultimately prove correct. Contrary to the prevailing Wall Street wisdom, Fed Chair Powell admitted that the Fed is in the top range of the neutral rate.
- Fed Chair Powell’s statement encouraged short sellers to push the pedal on the short side on gold to add to their existing short positions on gold.
- Wall Street and short sellers were proven right about what Fed Chair Powell would say but wrong about the reaction function.
- One of the reasons predicting markets is so much harder than other professions is the reaction function is unpredictable. In this case, short sellers were right about the event, but it turned out they were wrong about the reaction in gold.
- In The Arora Report analysis, the reason behind the short squeeze in gold is Wall Street’s positioning. Understanding positioning can give investors a big edge. For those who want the edge, listen to the podcast titled “MARKET MECHANICS: POSITIONING” in Arora Ambassador Club. To get on the waitlist to join the club, please click here fill out the form.
- The chart is also an important learning moment for those who want to be great investors. Prudent investors should note that the ZYX Short service from The Arora Report is very active in short selling, but The Arora Report did not give a short term trade for short selling gold when that was the popular trade going into the Fed announcement and Fed Chair Powell’s press conference. There are two reasons:
- The Arora Report provides a 360 degree analysis. The Arora Report saw Wall Street’s positioning in the short term was massively short, and as such, there was a high probability of a short squeeze.
- Most Wall Street models are static. They work for a while, but they stop working when market conditions change. To the best of our knowledge, the ZYX Asset Allocation Model from The Arora Report is the only model that has a consistent track record of performing over 19 years in both bull and bear markets. The secret is that the model is adaptive, i.e. the model changes itself to market conditions. Please click here to see how adaptiveness is achieved. The model was a result of Nigam’s work on artificial intelligence long before artificial intelligence became pervasive.
- President Trump says a ‘massive armada’ has reached the Middle East. President Trump is telling Iran time is running out to make a deal. Iran is threatening to retaliate. In The Arora Report analysis, given the sophistication of U.S. weapons as demonstrated in Venezuela, it is not clear if Iran has the capability to retaliate. Further, in The Arora Report analysis, prudent investors should note the Strait of Hormuz is a choke point in oil trade. The conventional wisdom is that Iran is capable of choking the strait.
- In The Arora Report analysis, Iran is producing about 2M barrels per day of oil in spite of heavy sanctions. The reason is that neither President Biden nor President Trump have enforced the sanctions. Both have been fixated on keeping gas prices low in the U.S. and thus have ignored massive exports of Iranian oil to China in violation of the sanctions.
- Brent crude is hitting $70. As a reference, brent was trading at $59 only recently.
- Chinese speculators have gone manic after copper. Copper has traded above $14,000 per ton. There are nice gains on the copper ETF position CPER in ZYX Allocation Core Model Portfolio. A major copper producer Freeport-McMoRan (FCX) is in the ZYX Buy Core Model Portfolio. ZYX Buy also has a special situation position in copper producer First Quantum Minerals (FQVLF). Both of these positions have large gains.
- Meta (META) stock is rocketing after earnings. Meta has demonstrated it is making profits from using AI for advertising.
- Microsoft (MSFT) reported solid earnings, but MSFT stock is down as Wall Street is myopically focused on Azure growth coming at 39% vs. 40%.
- Tesla (TSLA) reported a first ever decline in revenue, but TSLA stock is no longer about cars. Tesla is now all about robotaxis and humanoid robots.
- Initial jobless claims came at 209K vs. 205K consensus.
- Producer Price Index (PPI) will be released tomorrow at 8:30am ET.
- 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
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Apple (AAPL), Alphabet (GOOG), Meta (META), and Tesla (TSLA).
In the early trade, money flows are neutral in Nvidia (NVDA).
In the early trade, money flows are negative in Amazon (AMZN), and Microsoft (MSFT).
In the early trade, money flows are mixed 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 *** as it will depend on President Trump’s statement about Iran. 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 *** oil in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is seeing selling.
Markets
Interest rates and bonds are range bound.
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 7023 as of this writing. S&P 500 futures resistance levels are 7200, 7500, and 7700 : support levels are 7000, 6780, and 6500.
DJIA futures are up 10 points.
Gold futures are at $5543, silver futures are at $119.90, and oil futures are at $65.55.
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.
