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

Extreme Sentiment

Please click here for an enlarged chart of iShares 20+ Year Treasury Bond ETF TLT.

Note the following:

• In The Arora Report analysis, bonds have the potential to spoil the stock market’s party.  Prudent investors need to keep an eye on bonds.  
• The chart shows that yields are pulling back in the early trade after the release of the Consumer Price Index.
• The chart shows that on Trump’s win, TLT approached the high band of the support zone.
• The chart shows that the momo crowd ran TLT up back into the bottom resistance zone.
• The chart shows that TLT failed to breakout above the bottom resistance zone and has now pulled back below the bottom band of the resistance zone.
• The chart shows two spot on Arora calls:
  • Contrary Arora call that bonds will fall when the Fed cut rates. This call was made at a time when everyone was buying bonds.
  • Arora call on the impact of the election on bonds
• Inflation data came inline with consensus.  Here are the details:
  • Headline CPI came at 0.2% vs. 0.2% consensus.
  • Core CPI came at 0.3% vs. 0.3% consensus.
• In The Arora Report analysis, prudent investors should pay attention to the fact that the 0.3% core inflation rate is 3.6% annualized.  The Fed’s stated target is 2%.  
• The extreme positive sentiment is evident from the following this morning in the early trade:
  • Bonds rose and yields fell on inflation data.
  • Stock futures were lower prior to the data. Aggressive buying came into stocks after the data.  Buying is aggressive in Trump linked stocks such as Tesla Inc TSLA.
  •  Bitcoin was pulling back before CPI was released.  Aggressive buying came in after the release of the data.
  • None of the foregoing would make sense based on the data alone, but Wall Street’s thinking is that the Fed will be under pressure from Trump to cut rates in December – the fact that the data does not support a rate cut does not matter because of the political pressure.
• Momo gurus are already out with a new reason to buy stocks – inflation was hot but not worse than expected.
• Trump has announced that Musk and Ramaswamy will head the Department of Government Efficiency (DOGE).  On a lighter note, Doge is the crypto coin that was developed as a joke and subsequently championed by Musk.  An indication of extreme sentiment is that the joke coin is now worth more than Ford Motor Co F.  On a serious note, if Musk is truly able to cut $2T out of the federal budget, expect a recession and a 20% – 40% drop in the stock market.  In The Arora Report analysis, the primary driving force behind this stock market rise is the excess money in the system.  
• Initial jobless claims and Producer Price Index will be released tomorrow at 8:30am ET and maybe market moving.

China

There is a sigh of relief in Chinese and Asian markets in that even though Trump is appointing China hawks, he has not appointed extreme China hawks so far.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. AMZN, NVIDIA Corp NVDA, and TSLA.

In the early trade, money flows are neutral in Meta Platforms Inc META.

In the early trade, money flows are negative in Apple Inc AAPL, Alphabet Inc Class C GOOG and Microsoft Corp MSFT.

In the early trade, money flows are positive 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.

Bitcoin

Bitcoin BTC/USD is seeing aggressive buying.

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.