Smartest Banker In The World Sends A Message To Investors – Are You Listening?

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

Important Message

Please click here for an enlarged chart of JPMorgan Chase & Co JPM.

Note the following:

  • This article is about the big picture, not an individual stock. The chart of JPM stock is being used to illustrate the point.
  • JPMorgan is the largest bank in the world by market capitalization. JPMorgan CEO Jamie Dimon is the smartest banker in the world.
  • The chart shows that JPM stock has been running up.
  • RSI on the chart shows that JPM stock had become very overbought. As we have been sharing with you, when a stock is very overbought, it is vulnerable to the downside on the slightest news.
  • Yesterday was JPMorgan’s investor day.  The momo crowd was aggressively buying the stock based on momentum ahead of the event on hope strategy.
  • Even though the momo crowd controls the stock market these days, there are plenty of prudent investors.  Collectively, smart money has many, many times more money than the momo crowd.
  • In response to a question, Dimon said that JPMorgan would not buy back stock at the current level.  In plain English, this means that Dimon considers the run up in JPM stock overdone. Smart money sold the stock to the momo crowd, taking advantage of the strength generated by momo crowd buying.  However, momo crowd buying was not able to overcome smart money selling.
  • If you read correctly, recently Warren Buffett said the same thing about Berkshire Hathaway Inc Class B (NYSE: BRK-B) stock. Buffett is also not aggressively buying back his stock at these levels.
  • The chart shows a reversal and a big drop in JPM stock.
  • Smart money was paying attention to Dimon’s answer, and they sold the stock.
  • Knowledge is power.  The more you learn, the better you will do in the stock market. Here are the learning moments:
    • When smart money is selling a stock like JPM, they are not selling all of the position. They are only trimming their position.
    • The momo crowd’s behavior is all in or all out.  In contrast, smart money holds good positions for a very long time, and they simply trade around the core position. This is exactly what The Arora Report helps you do.
    • Valuations matter.  Valuations are considered in the quantitative screen of The Arora Report's ZYX Change Method. Please click here to see the six screens.
    • It pays to pay attention to overbought and oversold conditions instead of simply buying whatever is moving up like the momo crowd does.
  • As full disclosure, JPM stock is in The Arora Report's ZYX Buy Model Portfolio. It is long from $34.14.  
  • Fed Governor Waller says he needs to see several months of good inflation data before supporting interest rate cuts.
  • The Fed’s Mester said that three rate cuts in 2024 is not appropriate, and she would even be open to a rate hike.
  • Prudent investors should pay attention to Fed speak instead of blindly jumping on momo guru’s rate cut bandwagon they use to persuade investors to buy stocks.
  • Among earnings, home improvement retailer Lowe's Companies Inc LOW and department store chain Macy's Inc M reported earnings better than whisper numbers. Cybersecurity firm Palo Alto Networks Inc PANW projected earnings below consensus.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Microsoft Corp MSFT and NVIDIA Corp NVDA.

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, Meta Platforms Inc META, and Tesla Inc TSLA.

In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is inactive in the early trade.

Note for new investors: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very, very short term trades, consider following the momo crowd and not smart money.

Gold

The momo crowd is buying gold in the early trade. Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV

Oil

The momo crowd is like a yoyo in the early trade.  Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Crypto prices, including bitcoin BTC/USD, are surging on hopes that the SEC will soon approve an ether ETF. Ether surged over 19%.  

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

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 seven 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.

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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