By Nigam Arora
To gain an edge, this is what you need to know today.
Danger Zone
Please click here for a chart of 20+ year Treasury bond ETF (TLT).
Note the following:
- As a member of The Arora Report, you have been ahead of the curve. You have known about the danger zone shown on the chart for a while.
- The chart shows the TLT dipped in the danger zone.
- When The Arora Report first presented the danger zone, it was not known how spot on it would turn out. With the benefit of hindsight, we know that when TLT dipped in the danger zone, Treasury Secretary Bessent acted with an unprecedented move to increase the buyback of long dated securities. Please see the Morning Capsule from August 19 for details.
- The chart shows that TLT has now bounced out of the danger zone due to Bessent’s announcement.
- In The Arora Report analysis, the buyback of long dated securities is simply a band-aid for the $40T U.S. debt problem. A band-aid does nothing to fix the problem.
- The chart shows that there was an initial euphoria. The euphoria was entirely limited to the momo crowd that aggressively bought bonds and stocks on the news.
- The chart shows the initial euphoria has faded. In The Arora Report analysis, the reason the euphoria faded is that smart money sold into the strength generated by the momo crowd.
- Apparently concerned about smart money selling into the strength, Bessent is announcing that the $4B amount for the buyback may be the floor, not the ceiling. The buyback can be much larger than anticipated.
- In The Arora Report analysis, Bessent’s reaction is simply saying that he is going to put on a bigger band-aid. Further, in The Arora Report analysis, a bigger band-aid will do nothing to solve the $40T debt problem. Prudent investors need to discern that smart money and the momo crowd are reacting differently to this major move from the U.S. Treasury. Smart money is concerned because they understand that a buyback only temporarily restrains the move in the long bond. If inflation heats up, this move may simply make matters worse. On the flip side, as usual, the momo crowd is not thinking that far and is simply elated due to the short term upward momentum. So far, the biggest victim of the Treasury’s move is the king dollar. Foreigners have been selling the dollar after the announcement. A lower dollar can import inflation at a time when inflation is a big concern. U.S. consumers are addicted to cheap Chinese goods. A lower dollar means these goods become more expensive.
- As the momo crowd buys extremely aggressively, prudent investors need to make sure they have appropriate risk control measures in place. The Arora Report provides multiple layers of sophisticated risk control. Those who are heavily into the AI trade and are tempted to not have multiple layers of risk control just need to look at the blow up of the Situational Awareness fund. The fund lost 67% in July. Those interested in next level knowledge on this extremely important topic may consider listening to the podcast titled “BRUTAL MATH: WHY SMART MONEY USES 11 LAYERS OF RISK CONTROL PART 1.” The podcast is in Arora Ambassador Club.
- Now we know that the U.S. Treasury plans to use a bigger band-aid and do nothing fundamental towards the U.S. debt problem and risk significant adverse consequences in the long term. The question is what is the Fed going to do. Fed Chair Warsh will face a test in his speech at Jackson Hole next week. What Warsh says can have tremendous consequences for the markets and the U.S. economy both in the short term and the long term.
- Prudent investors need to be very mindful of the risks because the momo crowd is running amuck in the middle of mounting debt issues. At the same time, prudent investors need to make money from the upward momentum. The best way to make money and protect your portfolio at the same time is to follow the Arora Protection Band.
- 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 buying stocks in the early trade. Smart money is inactive 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 positive. 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 buying 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 inactive in the early trade.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is like a yoyo in oil in the early trade. Smart money is inactive in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is seeing aggressive buying as a vicious short squeeze continues.
Markets
Interest rates and bonds are range bound.
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 7703 as of this writing. S&P 500 futures resistance levels are 7900 and 8000 : support levels are 7700, 7318, and 7194.
DJIA futures are up 338 points.
Gold futures are at $4600, silver futures are at $69.50, and oil futures are at $86.98.
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 23% – 37% in cash, Treasury bills, short term fixed income, or allocated to short-term tactical trades; and short to medium-term hedges of 7% – 9%, and short term hedges of 5%. 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.
To take a free 30-day trial to paid services to gain access to more opportunities, please click here.
This post was just published on ZYX Buy Change Alert.
Markets can generate substantial wealth for knowledgeable investors. NOW YOU TOO CAN ALSO SPECTACULARLY SUCCEED AT MEETING YOUR GOALS WITH THE HELP OF THE ARORA REPORT. You are receiving less than 1% of the content from our paid services. …TO RECEIVE REMAINING 99%, INCLUDING MANY ATTRACTIVE INVESTMENT OPPORTUNITIES AND SIGNALS IN REAL TIME, TAKE A FREE
TRIAL TO PAID SERVICES.
The Arora Report is one of the only major global investment newsletters that does not employ a single salesperson—because it does not need to. While competitors rely on high-pressure sales tactics, The Arora Report grows purely through results, with satisfied members recommending it to their family and friends.
Join the service that investors trust the most and recommend to family and friends.
Please click here to take advantage of a FREE 30 day trial.
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.
