To gain an edge, this is what you need to know today.
Momo Does Not Like Trump Win
Please click here for an enlarged chart of SPDR S&P 500 ETF Trust SPY which represents the benchmark stock market index S&P 500 (SPX).
Note the following:
- The chart shows the stock market is consolidating just above the breakout line.
- The chart shows the stock market did not break up to zone 1 (resistance) on the tariff injunction news yesterday.
- The momo crowd aggressively bought stocks yesterday in the premarket when indexes were up about 2% on the news that a court had invalidated Trump’s tariffs. The stock market has given up all of those gains, and the momo crowd is now sitting on losses.
- Yesterday, we shared with readers in the Interim Capsule that the Court of Appeals has temporarily reinstated the tariffs. Of course, as our reader, you already knew in advance that it might happen from our Morning Capsule.
- Momo gurus are very unhappy about the Court of Appeals decision. The reason is that momo gurus’ real job is to run up the stock market under the disguise of analysis. President Trump’s win in the Court of Appeals is getting in the way of momo gurus’ attempts to run up the stock market.
- In yesterday’s Morning Capsule, we wrote:
Using Section 122 of the Trade Act 1974, President Trump can impose tariffs up to 15% for up to 150 days. Such new tariffs can replace the existing 10% universal tariffs. Section 122 can be implemented quickly without any formalities. President Trump can use section 122 while an appeal is pending.
- Today, there is a report that the White House is now considering using Section 122 if the appeals process is not successful. Again, as our reader, you knew this as the likely backup plan from yesterday’s Morning Capsule.
- President Trump just said China “has totally violated its agreement.” President Trump’s statement immediately brought in selling in the stock market. President Trump’s statement goes against Wall Street’s consensus that a trade deal with China is not far off. This Wall Street consensus is, in large part, responsible for the run up in the stock market. This Wall Street consensus is also behind the TACO (Trump Always Chickens Out) trade.
- PCE is the Fed’s favorite inflation gauge. The just released data is good. Here are the details:
- Headline PCE came at 0.1% vs. 0.1% consensus.
- Core PCE came at 0.1% vs. 0.1% consensus.
- The U.S. economy is 70% consumer based. For this reason, prudent investors pay attention to personal income and personal spending. The just released personal income data appears to be an aberration, and investors should ignore it. Here are the details:
- Personal spending came at 0.2% vs. 0.2% consensus.
- Personal income came at 0.8% vs. 0.3% consensus.
- University of Michigan Consumer Sentiment will be released at 10am ET and may be market moving.
Fast Growth In India
GDP in India grew by an annual rate of 7.4% vs. 6.7% consensus in the quarter that ended in March. India is on track to become the third largest economy in the world behind the U.S. and China. As a reference, the U.S. grows at about 2% – 3% per year.
Growth brings opportunities. India represents one of the best opportunities for long term investors. As full disclosure, India focused fund Fairfax India Holdings Corp (FFXDF), founded by the Warren Buffett of Canada, is in our ZYX Buy Core Model Portfolio. Three India ETFs WisdomTree India Earnings Fund (EPI), VanEck India Growth Leaders ETF (GLIN), and iShares MSCI India Small-Cap ETF (SMIN) are in our ZYX Emerging Model Portfolio.
Magnificent Seven Money Flows
In the early trade, money flows are neutral in Microsoft Corp (MSFT) and Alphabet Inc Class C (GOOG).
In the early trade, money flows are negative in Apple Inc (AAPL), Amazon.com, Inc. (AMZN), Meta Platforms Inc (META), Tesla Inc (TSLA), and NVIDIA Corp (NVDA).
In the early trade, money flows are negative in S&P 500 ETF (SPY) and Invesco QQQ Trust Series 1 (QQQ).
Latest Startup Investment Opportunities:
Momo Crowd And Smart Money In Stocks
Investors can gain an edge by knowing money flows in SPY and QQQ. Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil. The most popular ETF for gold is SPDR Gold Trust (GLD). The most popular ETF for silver is iShares Silver Trust (SLV). The most popular ETF for oil is United States Oil ETF (USO).
Bitcoin
Bitcoin BTC/USD is seeing selling.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. Our proprietary 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 a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. 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.
The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.
