To gain an edge, this is what you need to know today.
Tactical Positions Are Very Profitable
Tactical positions that were started near the April lows based on our buy signals are now very profitable. It is now time to take partial profits.
Do Not Trust New Good Economic Data
Please click here for an enlarged chart of Walmart Inc WMT.
Note the following:
- This article is about the big picture, not an individual stock. The chart of WMT stock is being used to illustrate the point. Walmart is the largest retailer, and the U.S. economy is 70% consumer based. For this reason, prudent investors pay attention to Walmart earnings.
- The chart shows when Walmart reported earnings.
- The chart shows that WMT stock has recovered much of the April drop related to tariffs.
- The chart shows that WMT stock previously rose to the low band of the resistance zone and then backed off.
- RSI on the chart shows that WMT stock is close to being oversold. RSI shows that after earnings, WMT stock could have bounced significantly.
- As full disclosure, WMT is in our ZYX Buy Core Model Portfolio and long from $19.25.
- The chart shows that this morning WMT stock is pulling back after a bump up from earnings.
- Walmart reported mixed results, roughly in line with consensus and whisper numbers. In our analysis, here are the key points:
- Investors should not trust Walmart numbers because much of the sales came from pre-tariff inventory.
- Investors should pay attention to Walmart’s warning that tariffs may result in price increases.
- Prudent investors closely watch retail sales data. Retail sales came cooler than expected. Here is the latest retail sales data:
- Headline retail sales came at 0.1% vs. 0.2% consensus.
- Retail sales ex-auto came at 0.1% vs. 0.5% consensus.
- In our analysis, investors should not trust this retail sales data because it is distorted from consumers buying ahead of tariffs.
- The just released Producer Price Index (PPI) shows inflation at the producer level is cooler than expected. Here are the details:
- Headline PPI came at -0.5% vs. 0.3% consensus.
- Core PPI came at -0.4% vs. 0.3% consensus.
- The PPI drop is the largest since the Covid shock in 2020. In our analysis, investors should not trust this data because it is distorted due to tariff related issues.
- Initial Jobless Claims came at 229K vs. 226K consensus. This indicates the jobs picture remains strong.
- President Trump said that India has offered a deal with no tariffs on U.S. goods.
- While the deal offer from India would be a positive for President Trump’s tariff efforts, it does not change Trump’s desire to bring manufacturing to the U.S. President Trump scolded Apple Inc (AAPL) for expanding production in India. President Trump wants Apple products produced in the U.S.
- Powell is speaking as of this writing. Here are the key points:
- The Fed is committed to the 2% inflation target.
- The U.S. may be entering a period of frequent supply shocks.
- The Fed could reconsider controversial language around the employment mandate.
- The Fed could reconsider average inflation targeting.
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 Amazon.com, Inc. (AMZN), NVIDIA Corp (NVDA), Meta Platforms Inc (META), Tesla Inc (TSLA), and AAPL.
In the early trade, money flows are negative in SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust Series 1 (QQQ).
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).
Oil
The U.S. is apparently close to striking a deal with Iran. Such a deal will increase oil supply.
Bitcoin
Bitcoin is seeing selling as whales take profits by selling their bitcoins to overexcited retail investors.
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.
