By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Raise Cash And Hedges
It is time to raise cash and hedges. For details, please see the section below titled “Protection Band And What To Do Now.”.
There are a number of triggers for this call that include ISM data (previously published in yesterday’s Interim Capsule) and President Trump following through with tariffs. Please note that this call may need to be quickly reversed if one of the following occurs:
- Trump changes his mind and removes the tariffs.
- The Fed starts indicating that it will rapidly cut interest rates.
It is a matter of personal preference to implement these changes now or wait until after Trump’s speech.
Pay Attention To Support Zone
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 that the stock market has fallen below the previous breakout line.
- The chart shows the support zone.
- Unless President Trump changes his mind or the Fed changes its policy, the stock market going to the support zone is the highest probability scenario at this time.
- RSI on the chart shows that the stock market is oversold. Oversold markets tend to bounce.
- President Trump will deliver a speech before the joint session of Congress this evening at 9pm ET. Trump is likely to talk about the Russia Ukraine war, DOGE actions, inflation, tariffs, and immigration.
- Normally, when the president speaks before Congress it is positive, optimistic, and invigorating. Often, it is designed to make the stock market go up. In The Arora Report analysis, prudent investors should pay attention to what Trump has said in advance of his speech. Trump has said, “I WILL TELL IT LIKE IT IS!” It is not clear what Trump is going to say and how it will impact the stock market.
- Of interest in the big picture is earnings from Target (TGT), as Target is a large retailer. Target beat on earnings, reported revenues inline, and guides earnings inline but revenues below consensus. The commentary from Target CEO Brian Cornell is mixed – the consumer is cautious and concerned about tariffs; there will be price increases.
- Momo gurus have been shouting from the top of their lungs that tariffs were a negotiation tactic and Trump would never impose them. As is often the case, momo gurus are wrong again. Prudent investors need to remember that momo gurus profit from the stock market going up; their real job is to persuade their followers to buy stocks regardless of market conditions.
- The momo gurus pattern is that when their calls are proven wrong, they come up with a new narrative to persuade their followers to buy stocks. The new momo guru narrative is that they know tariffs will be short lived.
- Investors should start with Arora’s Second Law Of Investing And Trading: “Nobody knows with certainty, what is going to happen next in the markets.” In The Arora Report analysis, investors should not be so sure that tariffs will be short lived, especially with China. The Chinese are extremely smart and strategic. For example, China has designed retaliatory tariffs in a manner that will hurt Trump supporters the most. China is trying to flood the White House with calls from Trump supporters to remove tariffs on China.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are neutral in Apple (AAPL) and Alphabet (GOOG).
In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), 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.
Very Very Short-Term Indicator
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.
Gold
Money is flowing out of bitcoin and into 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
OPEC+ has indicated that it may increase production under pressure from President Trump.
The momo crowd is *** oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Most of the gains in bitcoin from Trump’s announcement of a strategic crypto reserve have evaporated. Bitcoin (BTC.USD) is seeing selling.
Markets
Interest rates are ticking down, and bonds are ticking up.
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 5824 as of this writing. S&P 500 futures resistance levels are 5926, 6017, and 6131: support levels are 5748, 5622, and 5500.
DJIA futures are down 95 points.
Gold futures are at $2933, silver futures are at $32.45, and oil futures are at $67.73.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The 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.
