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

The Trump Trade

Please click here for an enlarged chart comparing SPDR S&P Biotech ETF XBI to Dogecoin to United States Dollar DOGE/USD.

Note the following:

• The chart shows that biotech XBI has lost 5.35% since Trump’s election.  Companies in this ETF are producing innovative life saving drugs, employ brilliant scientists, own significant intellectual property, and are often bought out at large premiums.
• The chart shows that Dogecoin has gained 48.78% since Trump’s election.  Dogecoin was initially developed as a joke.  At one time, it was endorsed by Elon Musk; its name is the same as the acronym of Trump’s Department of Government Efficiency.  The main use of Dogecoin is speculation by the meme crowd.  Dogecoin has an active meme crowd community behind it.
• The contrast between the performance of XBI and Dogecoin shown on the chart is emblematic of, in large part, what investors are buying and selling in the wake of Trump’s re-election.
• On top of investors rushing into speculative assets, sentiment is extremely positive.  Historically, extremely positive sentiment is a contrary indicator.  In plain English, it means sell.  As we have previously stated, sentiment is not a precise timing indicator.
• In spite of all the warning signals, The Arora Report call remains to buy the dips.  There are two main reasons:
  • There is an old saying on Wall Street that no one has ever been fired for losing clients’ money.  However, money managers get fired for lagging far behind their benchmarks.  No money manager, irrespective of his/her view of the market, wants to commit career suicide by not chasing the market at the year end. Bearish money managers who have missed out on this rally are likely to buy the dips and chase the stock market into the year end.
  • Right now, hopium is at an extreme.  There is nothing in the way of hopium.  Since Trump is not yet president, there is no reality to confront hopium.  Right now, the momo crowd is buying based on the best case of all of the positives that may come out of Trump’s policies, and they are ignoring all of the negatives.
• The plan is to start taking profits on new buys before hopium meets reality between Christmas and Trump’s inauguration. 
• As a note of caution, this is not a call for wholesale buying.  This is a call to buy on the margin based on the protection band.  
• Trump’s transition team is starting the work to help those who helped Trump get elected.  An example is the Trump team wanting to change the rules around self-driving cars in the U.S. to help Tesla Inc TSLA.  Musk has been a big supporter of Trump.  Over a period of time, expect many such moves from Trump’s team.  As a full disclosure, The Arora Report gave a signal to buy TSLA after Trump’s win.  The trade has been nicely profitable.  The system has also triggered a signal for a trade around position in TSLA, but publication of the signal may be delayed because TSLA stock has gapped up significantly.
• Trump has appointed Chris Wright as the next Department of Energy Secretary.  Wright is the CEO of Liberty Energy Inc LBRT.  Liberty Energy is engaged in fracking. Wright is also on the board of smart modular reactor company Oklo Inc OKLO that is backed by OpenAI founder Sam Altman.  Money is flowing into gas and nuclear stocks on Wright’s appointment.
• The most important event for the market this week is NVIDIA Corp NVDA earnings that will be released on Wednesday after the close.  This morning, NVDA is seeing aggressive selling because of a report of Blackwell chips heating up in data centers.
• In the early trade, retail investors are aggressively buying Trump stocks based on the weekend pump.  Professional investors are front running retail investors as they hope to sell at higher prices to retail investors later.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, TSLA, and Apple Inc AAPL.

In the early trade, money flows are neutral in Meta Platforms Inc META and Microsoft Corp MSFT.

In the early trade, money flows are negative in NVDA.

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 range bound.

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.