Raising Cash And Hedges, Pay Attention To Stock Market Support Zone Trump's Speech

To gain an edge, this is what you need to know today.

Raise Cash And Hedges

It is time to raise cash and hedges.  For details, please see the section below titled “Protection Band And What To Do Now.”.

There are a number of triggers for this call that include ISM data and President Trump following through with tariffs.  Please note that this call may need to be quickly reversed if one of the following occurs:

• Trump changes his mind and removes the tariffs.
• The Fed starts indicating that it will rapidly cut interest rates.

It is a matter of personal preference to implement these changes now or wait until after Trump’s speech.

Pay Attention To Support Zone

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 that the stock market has fallen below the previous breakout line.
• The chart shows the support zone.
• Unless President Trump changes his mind or the Fed changes its policy, the stock market going to the support zone is the highest probability scenario at this time.
• RSI on the chart shows that the stock market is oversold.  Oversold markets tend to bounce.
• President Trump will deliver a speech before the joint session of Congress this evening at 9pm ET.  Trump is likely to talk about the Russia Ukraine war, DOGE actions, inflation, tariffs, and immigration.
• Normally, when the president speaks before Congress it is positive, optimistic, and invigorating.  Often, it is designed to make the stock market go up. In The Arora Report analysis, prudent investors should pay attention to what Trump has said in advance of his speech.  Trump has said, “I WILL TELL IT LIKE IT IS!”  It is not clear what Trump is going to say and how it will impact the stock market.   
• Of interest in the big picture is earnings from Target Corp (TGT), as Target is a large retailer.  Target beat on earnings, reported revenues inline, and guides earnings inline but revenues below consensus.  The commentary from Target CEO Brian Cornell is mixed – the consumer is cautious and concerned about tariffs; there will be price increases.
• Momo gurus have been shouting from the top of their lungs that tariffs were a negotiation tactic and Trump would never impose them.  As is often the case, momo gurus are wrong again.  Prudent investors need to remember that momo gurus profit from the stock market going up; their real job is to persuade their followers to buy stocks regardless of market conditions.
• The momo gurus pattern is that when their calls are proven wrong, they come up with a new narrative to persuade their followers to buy stocks.  The new momo guru narrative is that they know tariffs will be short lived.
• Investors should start with Arora’s Second Law Of Investing And Trading: “Nobody knows with certainty, what is going to happen next in the markets.”  In The Arora Report analysis, investors should not be so sure that tariffs will be short lived, especially with China.  The Chinese are extremely smart and strategic.  For example, China has designed retaliatory tariffs in a manner that will hurt Trump supporters the most.  China is trying to flood the White House with calls from Trump supporters to remove tariffs on China.

Magnificent Seven Money Flows

In the early trade, money flows are neutral in Apple Inc (AAPL) and Alphabet Inc Class C (GOOG).

In the early trade, money flows are negative in Amazon.com, Inc. (AMZN), NVIDIA Corp (NVDA), Microsoft Corp (MSFT), Meta Platforms Inc (META), and Tesla Inc (TSLA).

In the early trade, money flows are negative in S&P 500 ETF (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).

Bitcoin

Most of the gains in bitcoin from Trump’s announcement of a strategic crypto reserve have evaporated.  Bitcoin is seeing selling.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  The proprietary protection band from The Arora Report is very popular.  The 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.