By Nigam Arora
To gain an edge, this is what you need to know today.
Weak Treasury Auction
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 continued buying after the stock market previously hit zone 1 (support).
- As described in yesterday’s Morning Capsule, there was a deep excursion inside zone 1 in the premarket before President Trump’s post rallied the stock market.
- This morning, there is buying in the stock market on President Trump declaring victory in the Iran war. President Trump said, “You know, I don’t like to say this, we’ve won this – this war has been won.”
- From our sources, Iran has rejected the ceasefire proposal and is calling talks with the U.S. “illogical.”
- So far, the markets believe President Trump, not Iran.
- The U.S. has submitted a 15-point plan. The U.S. demands are maximalist. Here are the key demands:
- No nuclear enrichment
- Dismantling of nuclear facilities
- Very limited missile production
- No support for proxies
- Joint control of Strait of Hormuz
- It is not clear who the U.S. is negotiating with on the other side. Iran continues to say it is not in talks with the U.S. Iran has also put out maximalist demands. Here are the main demands:
- Reparations for the damage
- Guarantee of no future attacks
- No sanctions
- No U.S. bases in the area
- Iran charging for passage through the Strait of Hormuz just like Egypt charges for passage through the Suez Canal
- There is conflicting information, and it is hard to know what is real and what is a chess game. In The Arora Report analysis, in spite of conflicting information, the scenario with the highest probability remains a ceasefire deal that is minimalist to allow for more time for more negotiations.
- There are reports that U.S. allies in the Gulf are concerned that the U.S. will give up too much, in its eagerness to extract itself from the situation, and leave Iran as a more potent adversary.
- In The Arora Report analysis, when a deal is reached, the highest probability scenario for the reaction of the markets is for the markets to not care about the merits of any deal and just sell oil and buy stocks, gold, silver, and bonds.
- What happens if there is no deal and the war continues? In The Arora Report analysis, at least for now, hopium has taken over, and the markets are not thinking about this possible scenario.
- It is very important for investors to remember Arora’s Second Law of Investing and Trading, which states, “Nobody knows with certainty what is going to happen next in the markets,” and follow with Arora’s Third Law, which states, “Making investing and trading decisions based on probabilities is the only realistic and profitable approach.”
- Prudent investors should pay attention to a reality check that happened yesterday. Two-year Treasury auctions are normally strong because there is not much duration risk. In an aberration, yesterday’s auction was very weak. Investors should pay close attention to upcoming auctions. Here are the results from yesterday’s auction:
- $69B 2-year Treasury note auction
- High yield: 3.936% (When-Issued: 3.918%)
- Bid-to-cover: 2.44
- Indirect bid: 59.4%
- Direct bid: 16.5%
- $69B 2-year Treasury note auction
- 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 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 *** but can quickly turn on Iran news. 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. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
API crude inventories came at a build of 2.3M barrels vs. a consensus of a draw of 1.3M barrels
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 range bound.
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 6655 as of this writing. S&P 500 futures resistance levels are 6780, 7000, and 7200 : support levels are 6600, 6481, and 6322.
DJIA futures are up 423 points.
Gold futures are at $4541, silver futures are at $72.80, and oil futures are at $88.44.
Arora Protection Band And What To Do Now
On March 23, the call was:
As far as the Arora Protection Band is concerned, remember The Arora Report principle: give precedence to the return of capital over the return on capital. Most investors may consider not making any changes to their protection band at this time until there is more clarity. Those who are aggressive may consider reducing the protection band by 3% – 5% but staying within the Arora Protection Band given below.
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.
