By Nigam Arora
To gain an edge, this is what you need to know today.
Classic Trump Whipsaw
Please click here for a chart of defense company RTX (RTX).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of RTX stock is being used to illustrate the point.
- The chart shows a big drop in RTX when President Trump said he would ban defense companies from buy backs and issuing dividends. President Trump singled out RTX as a big offender. Other defense stocks experienced a similar large drop.
- Only two hours later, the chart shows a big spike up in RTX, along with other defense stocks, when President Trump said he wants to build the dream military. President Trump wants to increase the 2027 defense budget from $1T to $1.5T.
- RTX is in the ZYX Buy Core Model Portfolio. The Arora Report uses over 50 different strategies. RTX was bought using the strategy of buying on a big dip in a stock due to temporary problems that are fixable. In the case of RTX, the problem was with Pratt & Whitney aircraft engines. RTX was bought at an average price of $80.70. RTX is trading at $192.47 as of this writing in the premarket. This represents a gain of 139%.
- For those who prefer ETFs, aerospace and defense ETF ITA is in the ZYX Allocation Model Portfolio and has large unrealized gains.
- President Trump wants to pay for the increase in defense spending with tariffs.
- All of the aggressive buying shown on the chart is coming from the momo crowd. In The Arora Report analysis, prudent investors should do some basic math.
- Tariffs generated $195B in fiscal year 2025.
- The estimates for tariffs from fiscal year 2026 range from $191B to $247B.
- President Trump wants to spend another $500B on defense and pay for it with tariffs.
- President Trump also wants to use tariffs to pay down U.S. debt by perhaps $1T.
- President Trump also wants to send $2000 of free money to each low and middle income American. Estimates of the cost range from $280B – $600B depending upon eligibility criteria.
- The numbers for money coming in and money going out do not add up.
- Also be mindful that tariffs are being challenged in the U.S. Supreme Court. The speculation is the Supreme Court will announce its decision tomorrow. The consensus is the Supreme Court will find a way to support President Trump.
- Prudent investors need to know that companies are already lining up to seek refunds of tariffs they have paid in case the Supreme Court rules against the tariffs.
- European defense stocks are rocketing. European defense stock ETF EUAD is in the ZYX Allocation Model Portfolio. The reason behind the move in European defense stocks is President Trump’s threat to use force to take over Greenland.
- A good way to profit from President Trump’s threats to take over Greenland is the stock of rare earth miner Critical Metals (CRML). CRML has a project in Greenland. CRML is in the ZYX Buy portfolio that surrounds the Core Model Portfolio. CRML should only be bought on pullbacks.
- After a long delay, China has approved purchases on Nvidia’s (NVDA) H200 chips. In an unusual move, Nvidia is demanding full payment upfront and saying the orders will not be able to be cancelled.
- Q3 productivity surged to 4.9% vs. 4.9% consensus.
- Of note is the Q3 labor costs declined 1.9% vs. a consensus of an increase of 0.8%. In The Arora Report analysis, the surge in productivity and decline in unit labor costs are two excellent pieces of news for the U.S. economy and the stock market. AI is beginning to show its impact in increasing productivity and reducing costs.
- JOLTS job openings released yesterday came at 7.146M vs. 7.449M prior.
- Initially jobless claims came at 208K vs. 217K consensus.
- The official jobs report will be released tomorrow at 8:30am ET.
- ISM Non-Manufacturing Index released yesterday came at 54.4 vs. 52.2 consensus.
- In The Arora Report analysis of the data, non-manufacturing activity is staying strong but job growth is likely to slow. The Fed may use slowing job growth as an excuse to cut interest rates.
- 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), Alphabet (GOOG), and Nvidia (NVDA).
In the early trade, money flows are negative in Apple (AAPL), Microsoft (MSFT), Tesla (TSLA), and Meta (META).
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 ***. 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 *** gold in the early trade.
For longer-term, please see gold and silver ratings.
Oil
EIA crude inventories had a drop of 3.83M barrels vs. consensus of a drop of 1.33M barrels. The higher than expected drop has brought buying into 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 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 6955 as of this writing. S&P 500 futures resistance levels are 7000 and 7200 : support levels are 6780, 6500, and 6256.
DJIA futures are down 171 points.
Gold futures are at $4434, silver futures are at $74.65, and oil futures are at $56.84.
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.
