By Nigam Arora
To gain an edge, this is what you need to know today.
Change In Arora Protection Band
There is a change in the Arora Protection Band. Please see the section below.
Stock Market’s Fate In Iran’s Hands
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 the stock market is making a lower low. Prudent investors should note that the lower low is in spite of aggressive buying by the momo crowd and a serious attempt by President Trump to stop the bleeding.
- RSI on the chart shows that despite making a lower low, the stock market is not oversold.
- The chart shows zone 1 (support) is ahead.
- In yesterday’s Morning Capsule, we shared with you:
Until this morning, the U.S. had refrained from attacking Iran’s energy infrastructure. Israel has attacked Iran oil storage facilities. In The Arora Report analysis, restraint by the U.S. has been prudent because if the U.S. were to attack Iran’s energy infrastructure, Iran would attack the energy infrastructure of U.S. allies in the Gulf.
South Pars gas field has been attacked. South Pars is a very large gas field in Iran.
- The U.S. was correct in its strategy of not attacking Iran’s oil and gas fields. But in the fog of war, everything does not always stay under control.
- Iran quickly retaliated by attacking LNG facilities in Qatar causing “extensive damage” at Ras Laffan. Ras Laffan is the largest LNG facility in the world.
- President Trump tried to control the situation by calling for de-escalation and saying Israel will not attack South Pars again.
- Iran has rebuffed President Trump and has continued to attack energy infrastructure in Saudi Arabia, Qatar, the U.A.E., and Kuwait.
- The situation is dynamic. The latest from Iran, as of this writing, is that Iran plans to continue attacking energy infrastructure in Gulf countries in retaliation for the attack on South Pars in defiance of President Trump’s call for de-escalation.
- As the chess game continues, in a remarkable turn of events, the U.S. is saying that it may lift sanctions on Iranian oil on the water. The U.S. objective is to keep a cap on oil prices. In The Arora Report analysis, such a move will give more dollars to Iran, helping it finance the war.
- Treasury Secretary Bessent is floating the idea of making Kharg Island a U.S. asset. Kharg Island is a part of Iran, and 90% of Iran’s oil is exported from Kharg Island.
- For investors, some history on the Arora Protection Band will be helpful.
- In 2007, when the stock market was hitting all time highs, the Arora Protection Band was raised to 100%. The Arora Report could confidently make that move because there was data to show the housing market would crash and subprime loans would crash the stock market. Subsequently in 2008, the S&P 500 fell by 50%.
- In January 2000, The Arora Report started raising the Protection Band which ultimately rose to over 88%. The stock market continued to make new highs with S&P 500 reaching 3386, then the stock market started crashing. In early March, The Arora Report lowered buy zones way below where stocks and ETFs were trading. In late March, the buy zones filled, and the stock market dropped as low as 2237, a 34% decline. The Arora Report could confidently raise the Protection Band because in The Arora Report analysis the evidence was there that the coronavirus would cause a pandemic even though the stock market was ignoring the evidence.
- The landscape for making changes to the Arora Protection Band now is different. There are two sides to the war. As you know, early on we predicted that President Trump would seek an off ramp and declare victory. For this reason, the Arora Protection Band was raised one day before the war started to a maximum protection of up to 49%. Since then, the Arora Protection Band was lowered in anticipation of President Trump declaring victory. President Trump did declare that the Iran war would end soon and the war was a short excursion, causing the stock market to rally. However, Iran continues to rebuff President Trump.
- We have shared with you before that Iran was concluding that a long war was in its interest. The latest Iran defiance of President Trump’s call for de-escalation indicates that Iran is not ready to end the war. For this reason, the Arora Protection Band is being raised again.
- Here is the key question: Even with Iran deciding that a long war is in its best interest, how long can Iran take the pounding of the American might? The answer is not clear at this time. There are two scenarios:
- Iran comes to the table, and the stock market stages a rip-roaring rally.
- Iran continues to attack energy infrastructure, oil jumps over $140, and the stock market falls. If the stock market falls, support (shown on the chart) is not far off.
- The best course for investors is to stay tuned to the Capsules and posts from The Arora Report.
- Initial jobless claims came at 205K vs. 215K consensus.
- Gold is falling, please see the gold section below.
- Micron (MU) earnings were a blowout, surpassing whisper numbers, but MU stock is falling, dampening overall sentiment.
- 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 neutral in Apple (AAPL).
In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Tesla (TSLA).
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. 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 ***, but can quickly turn based on news and rumors about the war. 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
Gold and silver are seeing aggressive selling due to rising interest rates.
The momo crowd is *** in gold in the early trade. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is *** in 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 selling.
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 6629 as of this writing. S&P 500 futures resistance levels are 6780, 7000, and 7200 : support levels are 6500, 6256, and 6131.
DJIA futures are down 345 points.
Gold futures are at $4586, silver futures are at $67.58, and oil futures are at $96.13.
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.
