By Nigam Arora
To gain an edge, this is what you need to know today.
Euphoric TACO Traders
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 big drop in the stock market on Friday on President Trump threatening to impose 100% additional tariffs on Chinese goods.
- In Friday’s Morning Capsule, when S&P 500 was trading at an all time high, we wrote:
In yesterday’s Morning Capsule, we shared with you that China was restricting the export of rare earths to gain leverage in talks with the U.S. President Trump is considering responding.
- The chart shows The Arora Report gave a signal to increase the Arora Protection Band by raising cash and hedges.
- The chart shows aggressive TACO (Trump Always Chickens Out) buying this morning.
- The proprietary VUD indicator is the most sensitive measure of net supply and demand in real-time. The orange represents net supply and the green represents net demand. The chart shows that on Friday the VUD indicator was orange, but in the early trade this morning, it has flipped to green.
- Over the weekend, President Trump said, “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!! President DJT.”
- TACO traders are interpreting President Trump’s statement as chickening out and are aggressively buying stocks. Retail traders are aggressively buying stocks. Institutions appear to be cautious.
- Euphoric TACO traders are oblivious that the Dutch government is seizing control of Chinese chip maker Nexperia due to a security threat.
- In The Arora Report analysis, there is a fair probability that President Trump is not chickening out, but seeking a diplomatic path forward. Further in The Arora Report analysis, in its bullish euphoria the stock market had assumed that tariffs, trade, and China were not anything to be concerned about; after Friday, at a minimum, prudent investors should not assume TACO traders are 100% right.
- Today is Columbus Day. The bond market is closed, and it is a bank holiday. Lower liquidity is helping the momo crowd to run up the stock market in the early trade. The Columbus Day holiday started in 1971. Since then, the stock market has risen between Columbus Day and the end of the year 72% of the years.
- The U.S. Department of War is planning to build an additional $1B stockpile of critical metals. This is triggering a short squeeze in three rare earth stocks in the Arora Portfolio. USAR is up 17%, CRML is up 16%, and MP is up 9% as of this writing in the premarket.
- Please see the gold section below regarding the short squeeze in silver.
- Earnings season kicks off with bank earnings in the premarket tomorrow morning from Goldman Sachs (GS), Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC).
- 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.
Japan
Opposition in Japan is in talks to challenge Sanae Takaichi. This development may temper the fear of excessive fiscal and monetary stimulation in Japan. Japan is important to investors in the U.S. market because of the carry trade.
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), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
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. 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
A vicious short squeeze is taking place in silver in London. An arbitrage opportunity has developed due to the price difference in silver in London and the U.S. Silver ETF (SLV) is up 2.77% as of this writing. In The Arora Report analysis, there is a fair probability that silver ETF SLV may also experience a vicious short squeeze.
Gold is hitting an all time high with gold futures briefly hitting $4100. In The Arora Report analysis, the gold market has a different opinion from TACO traders and the stock market; the gold market is indicating that tensions with China will continue.
In The Arora Report analysis, the probability of a short squeeze in gold ETF (GLD) is low.
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
Oil has crosscurrents. On one hand, the release of hostages in Gaza and President Trump talking peace in the Middle East is negative for oil. On the other hand, President Trump taking a diplomatic path with China is positive for oil. Oil ETF (USO) is up over 1% as of this writing.
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 buying.
Markets
Interest rates and bonds are range bound.
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 6673 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 up 396 points.
Gold futures are at $4097, silver futures are at $49.82, and oil futures are at $59.51.
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.
