By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Wall Street Abandons Trump
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 stock market is now in support zone 3.
- The chart shows the stock market touched the low band of support zone 3 early this morning.
- The chart shows that as of this writing, the stock market has bounced from the low band of support zone 3 to the top band. The stock market is extremely volatile. As an example, even a large stock like Microsoft (MSFT) has traded as low as $337.88 and as high as $358.40 in the premarket.
- The chart shows the prior support zone 2 is now resistance zone 1.
- The chart shows volume was heavy on the drop on Friday. This indicates conviction in the move.
- RSI on the chart shows the stock market is now very oversold. Oversold markets tend to bounce.
- All investors should understand capitulation because capitulation tends to form lasting bottoms. For those wanting next level information, there is a podcast titled “THE TEN SECRETS OF EPIC CAPITULATION RICHES” in Arora Ambassador Club. These are the secrets that led The Arora Report to make the highly contrary and bold call to back up the truck and buy stocks on March 9, 2009 when Wall Street was almost universally issuing sell signals. With the benefit of hindsight, March 9, 2009 turned out to be the exact bottom that started over a decade long bull market. Due to your numerous requests over the weekend, membership to Arora Ambassador Club is temporarily open for today only. If you would like to receive an invitation to join Arora Ambassador Club, please write to ambassador@TheAroraReport.com.
- In overnight trading and early this morning, the fastest hedge funds are showing signs of capitulation. However, retail investors, slower hedge funds, and institutional investors are not showing any signs of capitulation. Instead of capitulating, such investors are buying. Such buying can result in a bounce, but the bounce may not be an enduring bottom unless there is good news on the trade front.
- You may recall The Arora Report’s recent call has proven spot on now with the benefit of hindsight – buy tactical positions on President Trump’s re-election and sell them on Trump’s inauguration. In contrast, Wall Street’s call was to aggressively buy until Wednesday of last week. Wall Street had investors buying aggressively from the market top all the way to Trump announcing reciprocal tariffs – Wall Street had gone gaga over President Trump and simply did not believe what President Trump was saying. Now that the stock market has experienced a significant drop over the last two days, Wall Street has turned against President Trump. Now, Wall Street is selling after the drop.
- Wall Street is now urging President Trump to back off from the tariffs.
- President Trump is responding by being resolute on tariffs saying that the Fed should cut rates.
- In The Arora Report analysis, it would be highly unwise for the Fed to cut rates. Further, in The Arora Report analysis, if the Fed were to cut rates, it would increase the probability of stagflation. Think about this – if the Fed were to cut rates to counter tariffs and then in a short time Trump reaches great deals with several countries, will the Fed then raise interest rates? Fortunately for long term investors, in his speech on Friday, Fed Chair Powell showed that he has a spine, at least at this time, and did not promise rate cuts. However, prudent investors should remember the experience of 2018 when Powell lost his spine as the stock market dropped and relentless pressure from President Trump mounted.
- In the middle of all of this gloom, The Arora Report would like to point out green shoots.
- President Trump had a very positive call with the Secretary of the Communist Party of Vietnam. Vietnam is indicating zero tariffs on U.S. goods.
- Taiwan is choosing not to retaliate but instead to work with President Trump.
- India is choosing not to retaliate and instead focus on a bilateral trade deal with the U.S.
- Cambodia is choosing not to retaliate and is actively seeking to negotiate with the U.S.
- Mexico is taking a measured approach and does not intend to engage in tit-for-tat tariffs.
- The U.K. is taking a measured approach.
- Elon Musk is floating the idea of a zero tariff trade zone between Europe and the U.S.
- In The Arora Report analysis, a positive scenario can emerge – President Trump starts announcing deals with several counties, and the stock market rallies. Here is the key question: Will President Trump have the nerve to stand against Wall Street and some of his base?
- There is a wide range of outcomes possible – it is all in the hands of President Trump. There are rumors that President Trump is planning on imposing new tariffs. If new tariffs are imposed and no deals are struck with other countries, the stock market can go down another 15% – 20% from here.
- The best way for investors to handle the situation is to consider the following:
- Follow the protection band
- Follow hedges on individual positions
- Differentiate between strategic positions and tactical positions
- Have short positions. If you do not short sell, it is time to start learning. The best way to learn is to become a member of ZYX Short, not doing any trades initially, just learning.
- Large position in gold. However, keep in mind that as the momo crowd gets margin calls, they often sell gold because they have no other choice.
- Important economic data is ahead. Consumer Price Index (CPI) and initial jobless claims will be released Thursday at 8:30am ET, and Producer Price Index (PPI) will be released Friday at 8:30am ET.
- 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 negative in MSFT, Amazon (AMZN), Nvidia (NVDA), 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. 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 protection band and signals. Please click here and here to understand how signals are generated.
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) has cracked below $80K. Many bitcoin bulls are very disappointed because bitcoin gurus had sold them the premise that bitcoin would protect them against a drop in the stock market. More difficult than bitcoin for crypto bulls is that smaller coins are getting hurt very badly. For the crypto industry, smaller coins are a lot more profitable than bitcoin. As such, smaller coins have been aggressively promoted. In smaller coins, promoters have already made their money – it is the investors who are left holding the bag.
Markets
Interest rates are tickling 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 4984 as of this writing. S&P 500 futures resistance levels are 5210, 5256, and 5400: support levels are 4918. 4852, and 4826.
DJIA futures are down 1026 points.
Gold futures are at $3049, silver futures are at $30.22, and oil futures are at $61.01.
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.
