By Nigam Arora
To gain an edge, this is what you need to know today.
Iran Optimism
Please click here for a chart of leveraged semiconductor ETF (SOXL).
Note the following:
- The chart shows semiconductors rallied yesterday on Iran peace hopes.
- The chart shows semiconductors are rallying again in the early trade on Iran peace hopes.
- The chart shows zone 1 (resistance).
- Today is Friday before a long weekend. Expect liquidity to be low. Low liquidity and the potential of an Iran deal over the weekend are precisely the conditions that can lead to a vicious short squeeze driving the stock market, especially semiconductors, higher than you would think.
- If a short squeeze carries SOXL above zone 1, technically oriented investors will jump in on the breakout. For the momo crowd, SOXL at $200 will become the magnet.
- Semiconductors are the leading sector. If semiconductors go higher, they will carry the entire stock market higher.
- Yesterday was full of conflicting reports on Iran. These reports ranged from a deal was reached to there is no progress on the two sticky issues of uranium and opening the Strait of Hormuz. This morning, there is an unconfirmed report that the Pakistani Army Chief is on his way to Iran. This report is bringing in significant buying in the stock market, selling in oil, and buying in bonds.
- For investors, all of the noise and conflicting reports regarding Iran can be difficult, especially since President Trump has been saying the deal was close for several weeks. The best way to cut through the noise is to follow the proprietary Arora Protection Band.
- Kevin Warsh will be sworn in as Fed Chair today. Warsh has a difficult job as President Trump expects him to cut interest rates. However, he cannot cut interest rates without support from the majority of FOMC members. As we have previously shared with you, a majority of FOMC members are open to a rate hike and certainly do not want to cut interest rates.
- In The Arora Report analysis, the present Fed policy is in favor of easing. Expect negotiations between Warsh and the rest of the FOMC. Expect the rest of the FOMC to push Warsh to change Fed policy to neutral as a first step.
- Leading economic index and University of Michigan Consumer Sentiment will be released at 10am ET and may be market moving.
- China is the clear winner from the Iran conflict. During President Trump’s visit to China he was pushed hard by China to stop $14B worth of arms sales to Taiwan. Acting Navy Secretary Hung Cao is saying the U.S. is pausing arms sales to Taiwan. The reason Cao is citing is to make sure the U.S. has enough ammunition for the Iran conflict. The U.S. Congress approved arms sales to Taiwan in January, but it requires President Trump’s signature. In The Arora Report analysis, the pause in arms sales will cause anxiety in Taiwan, and China will count it as a win.
- Chinese AI and semiconductor stocks have not moved up anywhere close to the U.S. AI and semiconductor stocks. For those who can handle the China risk, China is an opportunity. ZYX Emerging has continuously covered China for 19 years. The plan is to add a new ETF in the ZYX Emerging Model Portfolio that covers the semiconductor supply chain in China.
- 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 Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are neutral in Alphabet (GOOG) and Meta (META).
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
The momo crowd is *** 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 range bound.
Markets
Interest rates are ticking down, and bonds are ticking up.
The dollar is range bound.
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 7498 as of this writing. S&P 500 futures resistance levels are 7500, 7700, and 7900 : support levels are 7200, 7000, and 6780.
DJIA futures are up 390 points.
Gold futures are at $4521, silver futures are at $76.11, and oil futures are at $96.44.
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.
