By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Extreme Sentiment
Please click here for a chart of 20+ year Treasury bond ETF (TLT).
Note the following:
- In The Arora Report analysis, bonds have the potential to spoil the stock market’s party. Prudent investors need to keep an eye on bonds.
- The chart shows that yields are pulling back in the early trade after the release of the Consumer Price Index.
- The chart shows that on Trump’s win, TLT approached the high band of the support zone.
- The chart shows that the momo crowd ran TLT up back into the bottom resistance zone.
- The chart shows that TLT failed to breakout above the bottom resistance zone and has now pulled back below the bottom band of the resistance zone.
- The chart shows two spot on Arora calls:
- Contrary Arora call that bonds will fall when the Fed cut rates. This call was made at a time when everyone was buying bonds.
- Arora call on the impact of the election on bonds
- Inflation data came inline with consensus. Here are the details:
- Headline CPI came at 0.2% vs. 0.2% consensus.
- Core CPI came at 0.3% vs. 0.3% consensus.
- In The Arora Report analysis, prudent investors should pay attention to the fact that the 0.3% core inflation rate is 3.6% annualized. The Fed’s stated target is 2%.
- The extreme positive sentiment is evident from the following this morning in the early trade:
- Bonds rose and yields fell on inflation data.
- Stock futures were lower prior to the data. Aggressive buying came into stocks after the data. Buying is aggressive in Trump linked stocks such as Tesla (TSLA).
- Bitcoin was pulling back before CPI was released. Aggressive buying came in after the release of the data.
- None of the foregoing would make sense based on the data alone, but Wall Street’s thinking is that the Fed will be under pressure from Trump to cut rates in December – the fact that the data does not support a rate cut does not matter because of the political pressure.
- Momo gurus are already out with a new reason to buy stocks – inflation was hot but not worse than expected.
- Trump has announced that Musk and Ramaswamy will head the Department of Government Efficiency (DOGE). On a lighter note, Doge is the crypto coin that was developed as a joke and subsequently championed by Musk. An indication of extreme sentiment is that the joke coin is now worth more than Ford Motor Company (F). On a serious note, if Musk is truly able to cut $2T out of the federal budget, expect a recession and a 20% – 40% drop in the stock market. In The Arora Report analysis, the primary driving force behind this stock market rise is the excess money in the system.
- Initial jobless claims and Producer Price Index will be released tomorrow at 8:30am ET and 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
There is a sigh of relief in Chinese and Asian markets in that even though Trump is appointing China hawks, he has not appointed extreme China hawks so far.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), and TSLA.
In the early trade, money flows are neutral in Meta (META).
In the early trade, money flows are negative in Apple (AAPL), Alphabet (GOOG) and Microsoft (MSFT).
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.
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
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 aggressive buying.
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 6018 as of this writing. S&P 500 futures resistance levels are 6017, 6131, and 6256: support levels are 5926, 5748, and 5622.
DJIA futures are up 21 points.
Gold futures are at $2620, silver futures are at $31.15, and oil futures are at $67.43.
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.
