By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Raise Cash And Hedges
In the Israel Iran war, The Arora Report has analyzed 28 different scenarios as they pertain to investors. The process to change the Arora Protection Band involves assigning a probability to each scenario and adding it to the unique, adaptive ZYX Asset Allocation Model. Remember, this is war, and things can change very quickly. Nothing is cast in stone. For the time being, there is only a small change in the Arora Protection Band. Cash is being increased by *** (To see the locked content, please take a 30 day free trial), and hedges are also being increased by ***. Please see the “Arora Protection Band And What To Do Now” section below for details.
- Investors should follow the Arora Principle: Give precedence to return of capital over return on capital. The importance of this principle is easy to understand when you consider the following scenario: If you lose 50%, you have to make 100% to get back to even.
- TACO traders, the momo crowd, and the meme crowd will buy every dip in the stock market. Aggressive buying from these groups will help cushion any stock market drop and may even cause the stock market to rise.
- TACO traders, the momo crowd, and the meme crowd will sell only if they are forced to sell because of margin calls. If these groups get margin calls, the stock market can experience a large, sharp drop.
- Option expiration is next week. As of this writing, in The Arora Report analysis, the positioning in options will put upward pressure on the stock market. However, note that positioning in options can change very quickly. Positioning is an important Wall Street mechanic. Understanding Wall Street positioning can give investors a big edge. For more, listen to the podcasts in Arora Ambassador Club titled “MARKET MECHANICS: POSITIONING” and “MARKET MECHANICS: IMPACT OF DEALERS’ GAMMA POSITION CHANGE ON THE STOCK MARKET.”
Important Reminder
As an important reminder, existing positions in defense and aerospace equities, oil equities, gold, silver, precious metal miners, and some international positions as well as short positions act as important additional hedges on top of the Arora Protection Band.
Highest Probability Scenario But A Trump Card
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 drop in the stock market after Israel’s attack on Iran.
- RSI on the chart shows the stock market is no longer overbought.
- Of the 28 scenarios analyzed, the highest probability scenario is the following:
- Iran being a great power will become a thing of the past.
- Iran’s air defense capability will be decimated.
- Israel will end up reducing both Iran’s nuclear capabilities and ballistic missile capabilities.
- In the most probable scenario, Iran’s regime will face an existential threat.
- Here is the key question for investors: Faced with an existential threat, will Iran play its trump card?
- The trump card is blocking the Strait of Hormuz. The Strait of Hormuz is important because one quarter of the world’s petroleum is shipped through the strait.
- Iran has the capability to block the strait.
- Israel does not have the capability to stop Iran from blocking the strait.
- In The Arora Report analysis, President Trump will likely try to keep the U.S. out of the war. However, if Iran attempts to block the Strait of Hormuz, President Trump will have a difficult decision to make since the U.S. is the only world power capable of preventing Iran from blocking the Strait of Hormuz.
- Prudent investors should keep in mind that although the most probable scenario is not for a bear market, there are scenarios with a fair probability that can cause a major stock market drop. It is important to stay tuned to The Arora Report.
- University of Michigan Consumer Sentiment will be released at 10am 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
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 *** 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 the news coming out of the Middle East and the White House. 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 *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) initially saw some selling, but the dip is being bought.
Markets
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.
S&P 500 futures are trading at 5990 as of this writing. S&P 500 futures resistance levels are 6017, 6131, and 6556: support levels are 5926, 5748, and 5622.
DJIA futures are down 466 points.
Gold futures are at $3457, silver futures are at $36.26, and oil futures are at $73.90.
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.
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.
