By Nigam Arora
To gain an edge, this is what you need to know today.
Complacent Investors
Please click here for a chart of South Korea ETF (EWY).
Note the following:
- The South Korean stock market right now is acting as a canary in the coal mine for the U.S. stock market.
- The chart shows about an 11% selloff in South Korea ETF EWY overnight.
- The chart shows the Arora buy signal on April 9, 2025 due to the tariff drop.
- The chart shows the run in South Korea ETF (EWY), including the recent parabolic move.
- The chart shows the Arora signal to take partial profits near the top.
- South Korea ETF (EWY) is in ZYX Emerging. There was a 210% gain from the April 9, 2025 buy signal to the partial profit taking signal last week right near the blowoff top shown on the chart.
- The chart also illustrates the immense power to generate profits and the big edge investors gain when they combine the ZYX Change Method with the adaptive ZYX Asset Allocation Model with inputs in ten categories.
- As a member of The Arora Report, you have been ahead of the curve. On February 12, we shared in the Morning Capsule:
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The chart shows South Korea ETF (EWY) has outperformed QQQ by 27.48%. South Korea is benefiting for two reasons:
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Two of the three major memory makers, Samsung Electronics (SSNLF) and SK Hynix (HXSCL), are in South Korea. Memory is in short supply due to high AI demand. At this time, investors perceive the risk in memory makers to be lower compared to other AI stocks even though memory makers, including Micron (MU) and Sandisk (SNDK) have gone parabolic.
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South Korea is a big exporter of industrial goods. Industrial activity is picking up across the globe.
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- There are only three major high bandwidth memory for AI manufacturers in the world: Micron (MU), Samsung, and SK Hynix.
- The crash in South Korea was triggered by the following:
- Spreading war in the Middle East, including Iran successfully hitting the heavily protected U.S. Embassy in Riyadh, Saudi Arabia
- Production at the Samsung plant in Texas being postponed until 2027
- Samsung and SK Hynix stocks crashing
- The crash in the South Korean market triggered a selloff in the U.S. stock market, especially in red hot semiconductor stocks. Semiconductor ETF (SMH) is down 3.5% as of this writing in the early trade.
- Even though the momo crowd is oblivious, prudent investors should pay attention to the unsustainable math in the Iran war. There are reports that it is taking two to three interceptors, such as Patriot missiles, to intercept one Iranian drone. Iranian drones cost about $20K each, while each Patriot missile costs about $4M. It might take $12M to shoot down a $20K drone. Some estimates put the number of Iranian drones near 20K. Just do the math, there are two problems.
- If the war is not short lived, it will be very costly for the U.S. and its allies.
- There is speculation that the U.S. and its allies do not have enough of a stockpile of these interceptors.
- RTX (RTX) is the maker of Patriot missiles. RTX stock is ripping. RTX is in the ZYX Buy Core Model Portfolio. RTX is long from an average of $85.07, representing a gain of 152% as of this writing in the premarket.
- We shared with you in yesterday’s Morning Capsule how Wall Street was positioned going into the Iran war and how investors were acting in the early trade on the first market day of the war. Yesterday, the stock market rallied from the lows for the following reasons:
- Positioning
- Momo crowd buying
- Investor complacency
- Momo crowd embracing risk as opposed to reducing risk
- Smart money sold into the stock market rally
- In The Arora Report analysis, the momo crowd continuing to embrace more risk as opposed to reducing risk has the potential to become the driver to the downside for this market if the Iran war is not short lived.
- This morning in the early trade, there is significant selling in the stock market triggered by the crash in South Korean stocks.
- 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 negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
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 as they believe every tiny dip must be bought. Smart money is *** in the early trade after selling yesterday, taking advantage of the rally.
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. The *** is especially aggressive in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is *** gold in the early trade. In The Arora Report analysis, here are the reasons why smart money is selling gold:
- If oil continues to rise, it will increase inflation and, in turn, bring interest rates higher. Higher interest rates are negative for gold.
- If the momo crowd’s favorite stocks drop, the momo crowd will be hit with margin calls. Historically, the momo crowd ends up selling gold and silver to meet the margin calls.
It is important to note that smart money holds large positions in gold and silver and is simply tactically thinking ahead to take advantage of strength generated by the momo crowd while holding core positions.
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. Yesterday’s rally in bitcoin was primarily driven by the retail crowd. Bitcoin whales appear to have taken advantage to sell to the retail crowd at higher prices.
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 6765 as of this writing. S&P 500 futures resistance levels are 6780, 7000, and 7200 : support levels are 6500, 6256, and 6131.
DJIA futures are down 860 points.
Gold futures are at $5148, silver futures are at $81.98, and oil futures are at $76.01.
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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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.
