To gain an edge, this is what you need to know today.
Aggressive Stock Buying
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 has approached the top band of resistance zone 2.
- RSI on the chart indicates that the market is extremely overbought. Overbought markets tend to pullback.
- The chart shows that during the rally, volume has not been heavy. This indicates lack of conviction.
- The chart shows when our Protection Band was adjusted leading to buy signals.
- In our analysis, as we dissect the volume, two points stand out:
- Retail investors are aggressively buying stocks.
- Institutional investors are taking advantage of retail buying to trim stocks.
- As of this writing, a short squeeze is in progress.
- Aggressive buying in the stock market is coming in on the jobs report. The jobs report was better than expected. Here are the details:
- Non-farm payrolls came at 177 vs. 130K consensus.
- Non-farm private payrolls came at 167K vs. 125K consensus.
- Unemployment rate came at 4.2% vs. 4.2% consensus.
- Average work week came at 34.3 vs. 34.2 consensus.
- Average hourly earnings came at 0.2% vs. 0.3% consensus.
- Prudent investors need to keep in mind three key points about the jobs report:
- The jobs report is still showing only 9K federal workers losing their jobs. The number is clearly underrepresenting federal layoffs due to the way the data is compiled.
- The jobs report is a lagging indicator. Our report system is based on leading indicators. Prudent investors who are focused on maximizing the wealth they generate over their lifetime should focus on leading indicators, not lagging indicators.
- For prudent investors, it is worth repeating an important point we have been sharing with you:
Going forward, investors need to remember that employment is like a shoulder – it slowly declines and then rapidly falls off. When employment falls off, this is an early indication of a potential impending recession.
- Yesterday evening significant buying came into stock futures when China said it was open to trade talks with the U.S.
- After great earnings from Microsoft Corp (MSFT), Meta Platforms Inc (META), Apple Inc (AAPL) and Amazon.com, Inc. (AMZN) disappointed.
- Apple reported the March quarter inline with consensus. Apple sees $900M in tariff costs for the June quarter. Apple was also not able to provide its usual commentary for product and service growth due the high degree of uncertainty. The company also did not provide any significant commentary related to AI that could have boosted the AAPL stock.
- Overall, Amazon reported Q1 better than the consensus, but AWS was slightly below expectations. There is concern that Amazon AWS may be losing market share to Microsoft Azure. AMZN stock would have been lower if it was not for Amazon indicating the AI opportunity may be over a trillion dollar opportunity – significantly more than Amazon previously thought.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Alphabet Inc Class C (GOOG), NVIDIA Corp (NVDA), Microsoft (MSFT), Meta (META), and Tesla Inc (TSLA).
In the early trade, money flows are negative in Apple (AAPL).
In the early trade, money flows are positive 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
Bitcoin is seeing buying.
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.
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