By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Avoid The Common Investment Mistake
Please click here for a chart of 20+ year Treasury bond ETF (TLT).
Note the following:
- Countless investors and investment advisors are losing significant money because they are stuck in the orthodox thinking that long bonds are a safe haven.
- The chart shows when TLT broke above zone 2 (resistance), there was aggressive buying in bonds, often considered a safe haven.
- The chart shows bonds fell the next day below zone 2.
- The chart shows bonds proceeded to fall through zone 3 (support) to the top band of zone 4 (support).
- The chart shows bonds have bounced back into zone 3 (resistance).
- RSI on the chart shows TLT is oversold. This contributed to the bounce.
- The chart shows there is an RSI divergence. This indicates that TLT may fall again.
- When the stock market recently began experiencing turbulence, countless investors and investment advisors rushed to buy long bonds. The reason is that they are stuck in academic and Wall Street orthodoxy that long bonds are a safe haven. The result of investors and investment advisors not being able to break out of the orthodox thinking is that they lost significant money on a so-called safe haven. The foregoing is clearly proven from the chart.
- The chart shows when the Fed made an aggressive 50 bps rate cut last year.
- The chart shows that TLT also broke out above the top band of zone 1 (resistance). At that time, believing that long bonds would go higher, countless investors and investment advisors bought long bonds.
- The chart shows the contrary Arora call at that time that bonds will fall. The chart shows that the Arora call has proven spot on, and investors who bought long bonds on the Fed’s aggressive rate cut have experienced significant losses.
- Not shown on the chart is another Arora contrary call that bonds would fall in 2022. That call was made at a time when investors and investment advisors were rushing to buy long bonds as a safe haven. In 2022, long bonds fell 31.24%, producing large losses for investors who were stuck in orthodox thinking.
- The record is crystal clear. Investors who have followed The Arora Report’s proprietary Protection Band instead of following Wall Street’s traditional 60/40 portfolio have done tremendously better.
- Recognizing that many investors and investment advisors are not able to break out of the orthodox thinking, in every Morning Capsule, The Arora Report publishes a section titled “Traditional 60/40 Portfolio.” Investors and investment advisors who have followed the dynamic recommendation embodied in the “Traditional 60/40 Portfolio” section in the Morning Capsules have also done tremendously better than typical Wall Street recommendations, but nowhere near as well as those who follow The Arora Report’s Protection Band.
- Initial jobless claims came at 215K vs. 225K consensus.
- In yesterday’s Interim Capsule, we shared with you in Interim Capsule:
The big news today is that Fed Chair Powell was asked if there was a Fed put at the Chicago Economic Club. Powell replied, “No.”
Now that the market has discovered there is no Fed put, stocks are being sold.
- As a member of The Arora Report, you prepared for Powell’s statement as we have been writing there is no Fed put. However, the market believed there was a Fed put. Powell’s statement goes against the market forecast.
- President Trump blasted Powell in a post after Powell saying there is no Fed put. President Trump wrote, “The ECB is expected to cut interest rates for the 7th time, and yet, ‘Too Late’ Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete ‘mess!’”
- Powell has clearly angered President Trump. President Trump also posted, “Powell’s termination cannot come fast enough!”
- As a heads up, if President Trump fires Powell, the Arora Protection Band will likely be significantly raised.
- News about trade negotiations is very important for the markets. Here are the three pieces of news to focus on.
- President Trump met with Japanese trade representatives and made good progress.
- President Trump had a productive call with the President of Mexico.
- Today, President Trump is meeting with Italy.
- Among earnings, the following are noteworthy:
- The largest home builder D.R. Horton (DHI) reported below consensus and is guiding below consensus.
- The largest health insurer UnitedHealth Group (UNH) reported earnings below consensus and guided below consensus. UnitedHealth results highlight rising medical costs.
- The largest semiconductor foundry Taiwan Semiconductor Manufacturing Company (TSM) reported above consensus and is guiding above consensus.
- Eli Lilly (LLY) reported Phase III data for orforglipron, an oral weight loss drug. The weight loss is comparable to Wegovy and inline with Wall Street’s expectations of 5% – 6% weight loss. The pill is also highly effective for diabetes. Effective, injectable weight loss drugs have been very popular. The stock market has been waiting for an effective weight loss pill. Eli Lilly’s results show that a weight loss pill is almost here. LLY stock is jumping 13% in the premarket. LLY stock is trading at $829.12 as of this writing in the premarket. LLY is in the ZYX Buy Core Model Portfolio, long from $318.45. This represents a gain of 160%. There is also a signal in ZYX Short for short selling Eli Lilly competitor Novo Nordisk (NVO).
- 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.
Europe
The European Central Bank (ECB) has cut three key interest rates by 25 bps. The rate cut appears to be influenced by the tariff decisions made by President Trump.
Magnificent Seven Money Flows
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
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 *** in 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 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 5325 as of this writing. S&P 500 futures resistance levels are 5400, 5500, 5622: support levels are 5256, 5210, and 5020.
DJIA futures are down 391 points.
Gold futures are at $3339, silver futures are at $32.50, and oil futures are at $62.86.
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.
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.
