To gain an edge, this is what you need to know today.
Rate Cut Hopes Win Out
Please click here for an enlarged chart of SPDR S&P 500 ETF Trust (NYSE:SPY) which represents the benchmark stock market index S&P 500 (SPX).
Note the following:
- The chart shows the stock market drop on Friday on tensions heating up between the U.S. and China and TACO (Trump Always Chickens Out) traders running the stock market back up Monday morning.
- The chart shows Fed Chair Powell's speech yesterday driving the stock market higher. Fed Chair Powell's speech indicated the Fed may cut interest rates at the next FOMC meeting.
- The chart shows the stock market's reaction to President Trump's post on soybeans and cooking oil.
- The chart shows the prospect of rate cuts overshadowed President Trump showing his next move in the trade war with China. President Trump's Truth Social post which stated, "We are considering terminating business with China having to do with Cooking Oil, and other elements of Trade, as retribution.” The issue is China is not buying soybeans from the U.S.
- In our analysis, President Trump's threat to China on cooking oil is not going to mean much. China has its eye on replacing the U.S. as the world's superpower, and as such, China is not going to care about cooking oil. Also due to U.S. tariffs and China cutting tax rebates, the imports of cooking oil have fallen 65% this year prior to President Trump's latest threat.
- In yesterday's Morning Capsule, we shared with you:
This morning TACO traders are meeting CAHN (China Always Holds Its Nerve) traders.
- China's President Xi has seen how the U.S. markets respond to President Trump escalating the trade war and how President Trump responds. The stock market drop on Friday played into President Xi's plan to hold steady.
- Walmart Inc (NYSE:WMT), the largest retailer in the U.S., and OpenAI announced a partnership. Consumers will be able to make purchases via an instant checkout in ChatGPT.
- As full disclosure, WMT is in our portfolio. We are long from $19.25. From a technical perspective, WMT stock has broken out.
- In our analysis, Walmart's move to agentic commerce is a major milestone. Further, the Walmart move is a departure from the traditional practice of large retailers such as Walmart guarding the purchasing data and then profiting from selling the purchasing data and using it to bring in advertisers. Now, it appears OpenAI will get access to Walmart's purchasing data, giving ChatGPT a leg up over its competitors.
- Among earnings, Bank of America Corp (NYSE:BAC) and Morgan Stanley (NYSE:MS) are better than the consensus and whisper numbers.
- The Fed's Beige Book will be released today at 2pm ET and may be market moving.
- In the early trade, the momo crowd is extremely aggressively buying quantum computing stocks such as Rigetti Computing Inc (NASDAQ:RGTI), IONQ Inc (NYSE:IONQ), and D-Wave Quantum Inc (NYSE:QBTS) and nuclear stocks such as Oklo Inc (NYSE:OKLO), Nuscale Power Corp (NYSE:SMR), and Nano Nuclear Energy Inc (NASDAQ:NNE), and space stocks such as Rocket Lab Corp (NASDAQ:RKLB) and AST SpaceMobile Inc (NASDAQ:ASTS). After a torrid run, rare earth mineral stocks, including three in our portfolio MP Materials Corp (NYSE:MP), USA Rare Earth Inc (NASDAQ:USAR), and Critical Metals Corp (NASDAQ:CRML), are seeing profit taking in the early trade.
- The U.S. Army is planning to deploy smart modular reactors on its bases.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Apple Inc (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), Meta Platforms Inc (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT), NVIDIA Corp (NASDAQ:NVDA), and Tesla Inc (NASDAQ:TSLA).
In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ: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 (NYSE:GLD). The most popular ETF for silver is iShares Silver Trust (NYSE:SLV). The most popular ETF for oil is United States Oil ETF (ASCA:USO).
Gold
Gold ETF (GLD) and silver ETF (SLV) were showing signs of exhaustion when Powell's speech came. Powell's speech has given a second wind to the gold and silver rally.
Bitcoin
Bitcoin (CRYPTO: BTC) is seeing selling. During the recent rally, a whale appears to have started a new short position in bitcoin.
What To Do Now
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.
Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
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