By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Bonds Fall On Trump Win
Please click here for a chart of 20+ year Treasury bond ETF (TLT).
Note the following:
- After Trump’s win, bonds are front and center.
- The chart shows when the contrary Arora call was made that bonds would fall. That call was made at a time when everyone was predicting that bonds would rise. That important call has proven spot on.
- The chart shows when the Arora call was made about the election. We wrote in the Morning Capsule on October 8, “In the event of a one party sweep, TLT can potentially fall to the bottom support zone.”
- The chart shows that the second Arora call on bonds has proven accurate after Trump’s win.
- The chart shows when Trump won the election.
- The chart shows that on Trump’s win, TLT gapped down and opened close to the top and of the bottom support zone. Yesterday’s bar does not show premarket data. In the premarket, TLT touched the top band of the support zone. On The Arora Report charts, premarket data is included on the current day, but not on the previous days. This methodology provides the most clarity.
- The FOMC will announce its rate decision at 2pm ET, followed by Powell’s press conference at 2:30pm ET.
- The consensus is that the Fed will cut rates by 25 bps.
- In The Arora Report analysis, the Fed could not possibly be happy about the large drop in bonds after the last rate cut. We will be paying careful attention to what Powell says about the drop in bonds in his press conference. If Powell says anything about this subject, it will be the most important new information that can be gleaned today.
- Most institutional investors and many retail investors have suffered massive losses in bonds. It is important to remember that the largest amount of money is still managed using the 60/40 portfolio as a starting point. This means 60% in stocks and 40% in bonds. The Arora Report has long shown that following the protection band is heads and shoulders above following the 60/40 portfolio. Nonetheless, the dogma of 60/40 remains popular. This is the reason we publish information on 60/40 portfolios in the Morning Capsule. For those following the 60/40 portfolio, The Arora Report call has been to limit the duration to less than five years. The Arora Report call on duration has been consistent at a time when a vast majority of money managers were significantly increasing duration. The longer the bond duration, the larger the losses investors have suffered.
- Thank you for all of your compliments on the three Arora calls outlined above for saving you from large losses that most investors are experiencing.
- In The Arora Report analysis, after Trump’s election the Fed is faced with two important issues:
- In The Arora Report analysis, depending upon how Trump implements his tariff plan, it may add 0.5% – 1% to inflation.
- According to the nonpartisan Committee for a Responsible Federal Budget, Trump’s tax plans will increase the national deficit by $7.8T over the next 10 years. All of this deficit will have to be financed by borrowing. This will increase the supply of Treasuries. A higher supply of Treasuries will lead to higher interest rates on the long end, unless the Fed decides to manipulate it with quantitative easing or some other artificial method.
- At a time when the stock market is at an all time high and bonds are suffering major losses, there is not good news on the economic data front.
- Unit labor costs are spiking. Q3 Unite Labor Costs – Preliminary came at 1.9% vs. 0.5% consensus.
- As of this writing, the momo crowd is oblivious. However, expect smart money to pay attention to this important, highly inflationary data. Also expect the Fed to pay attention to this data.
- Initial jobless claims came at 221K vs. 222K consensus. This indicates that the employment picture remains strong, especially at the low end.
- In The Arora Report analysis, there is another important question that the Fed will have to face. Trump plans to deport undocumented immigrants. According to the Department of Homeland Security, there are about 11M undocumented immigrants in the U.S. What happens to labor supply at the low end if 11M workers are taken out of the workforce? What does it do to inflation? What does it do to economic growth, and in turn the stock and bond markets?
- 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.
England
The Bank of England has cut interest rates. The key interest has been reduced to 4.75% from 5%.
This is the first cut by a major central bank after Trump’s election. Investors should keep an eye on how the European Central Bank and the Bank of Japan act after Trump’s election. Remember, the U.S. economy is intertwined with the global economy.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Apple (AAPL).
In the early trade, money flows are negative in Tesla (TSLA).
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 range bound.
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 59743 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 5 points.
Gold futures are at $2691, silver futures are at $31.68, and oil futures are at $71.24.
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.
