By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Spot On Arora Call
Please click here for a chart of 20+ year Treasury bond ETF (TLT).
Note the following:
- The chart shows when the Fed rate cut was announced.
- At the time the Fed rate cut was announced, this was the landscape:
- Wall Street firms were tripping over themselves to rush their clients into buying long bonds.
- The momo crowd was aggressively buying long bonds.
- Technically, long bonds had broken out.
- Trading services were sending signals to their members to go all in on buying long bonds.
- Almost everyone was predicting that bond yields would fall much lower.
- Long bonds move inversely to the yield. When yield goes higher, long bonds fall.
- On the morning before the Fed rate cut announcement, The Arora Report made a bold call contrary to the prevailing wisdom. The call was inline with prior calls from The Arora Report that long bond yields may rise and long bonds may fall after the rate cut. We wrote:
One unintended consequence may be a rise in long term yields in due course.
- The chart shows that The Arora Report’s bold call against the prevailing wisdom has proven spot on so far.
- The chart shows that long bonds have fallen and yields have risen.
- The chart shows that the breakout above the resistance zone failed. Ironically, this breakout was the reason legions of investors who rely only on traditional technical analysis bought long bonds on the breakout. To make matters worse, most of such bond trading positions are taken on high leverage. Due to high leverage, these positions now have substantial losses.
- This is a cautionary tale that illustrates why investors should not rely solely on one form of analysis such as traditional technical analysis. Investors should rely on systems, such as The Arora Report system, that synergistically combine in an optimized manner the best elements of the following:
- Macro analysis
- Fundamental analysis
- Technical analysis
- Quantitative analysis
- This is a cautionary tale that illustrates why investors should not rely solely on one form of analysis such as traditional technical analysis. Investors should rely on systems, such as The Arora Report system, that synergistically combine in an optimized manner the best elements of the following:
- Money is flowing into the safety of Treasuries due to anxiety about potential escalation of conflict in the Middle East. In The Arora Report analysis, if it was not for the escalation in the Middle East, TLT would have been much lower now.
- Going forward, investors need to remember the probability adjusted risk reward ratio in long bonds is not great. Long bonds will work only if there is a major recession or a major war breaks out. However, investors need to remember that the stock market is counting on no recession. Investors are suffering from cognitive dissonance – they are buying stocks believing that there will not be a recession, they are buying bonds believing there will be a recession.
- If inflation starts rising again, investors in long bonds will experience major losses. Investors are very short sighted and are also losing track of the fact that the election is not far away. Both Trump and Harris are committed to more reckless borrowing and more reckless spending. This will increase the supply of Treasuries. How can a higher supply of Treasuries be good for long bonds? The answer is that it is not good for long bonds.
- On the positive side, Nvidia (NVDA) CEO Jensen Huang says Blackwell production is in full swing and the demand for Blackwell is insane.
- Also on the positive side, OpenAI has raised $6.6B in new funds at a valuation of $157B. This valuation is significantly higher than the last round.
- Anxiety is building among investors regarding the upcoming strike on Iran by Israel. There are reports that Israel wants to attack Iran’s nuclear installations, but Biden is trying to restrain Israel.
- Initial jobless claims came at 225K vs. 223K consensus. Jobless claims are not showing weakness in the jobs picture. Powell saw weakness in the jobs picture, and that was one of his justifications for the 50 bps rate cut. More information will become available about the jobs picture tomorrow when the official jobs report is released at 8:30am ET. The jobs report has the potential to be a major market moving event.
- ISM Non-Manufacturing Index will be released at 10am ET. The consensus is 51.6. This data may be market moving.
- 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
The stock buying stampede in Hong Kong is slowing. Mainland markets are closed. Prudent investors are taking advantage of the rally to sell. The Arora Report plan continues to be to buy on a dip. The new buy zones for Mainland China ETF (ASHR) and Hong Kong ETF (FXI) are in ZYX Emerging.
India
Growth concerns are emerging in India. Money is beginning to flow out of India and into China. There are new signals on India ETF (EPI), India Growth Leaders ETF (GLIN), and India Small Cap ETF (SMIN) in ZYX Emerging.
Magnificent Seven Money Flows
In the early trade, money flows are positive in NVDA.
In the early trade, money flows are neutral in Microsoft (MSFT).
In the early trade, money flows are negative in Apple (AAPL), Amazon (AMZN), 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.
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 seeing selling along with junk stocks.
Markets
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.
Interest rates are ticking up, and bonds are ticking down.
The dollar is stronger.
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.
Gold futures are at $2666, silver futures are at $31.83, and oil futures are at $71.94.
S&P 500 futures are trading at 5744 as of this writing. S&P 500 futures resistance levels are 5926 and 6017: support levels are 5748, 5622, and 5500.
DJIA futures are down 146 points.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash or Treasury bills 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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This post was just published on ZYX Buy Change Alert.
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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.
