Soft Treasury Auctions Are Hitting The Stock Market, Mt. Gox Related Drop In Bitcoin

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

Poor Treasury Auctions

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 that the stock market has pulled back to the upper band of the support zone.
  • RSI on the chart foreshadowed that such a pullback might be coming when it hit the rare instance of reaching 100.
  • The stock market is coming under pressure because two Treasury auctions were soft.
  • Here are the details of the $70B five year Treasury auction results:
    • High yield: 4.553% (When-Issued: 4.540%)
    • Bid-to-cover: 2.30
    • Indirect bid: 65.0%
    • Direct bid: 15.4%
  • Here are the details of the $69B two year Treasury auction results:
    • High yield: 4.917% (When-Issued: 4.907%)
    • Bid-to-cover: 2.41
    • Indirect bid: 57.9%
    • Direct bid: 25.5%
  • There is another Treasury auction of $44B seven year notes. The results of the auction will move the market.
  • Minneapolis Fed President Neel Kashkari said that a rate hike is not off the table. He also said that the Fed could keep interest rates higher for longer.
  • The probability of the Fed doing nothing over the next three meetings has now moved up to 53% from 42% a week ago.
  • New York Fed President John Williams will speak at 1:45pm ET. His comments might move the market.
  • The Fed’s Beige Book will be released at 2pm ET and will provide more information.
  • Prudent investors should also note that the Conference Board’s Consumer Confidence Index rose to 102.0 vs. 96 consensus. This large increase in consumer confidence indicates that the jobs picture is strong, the consumers are likely to spend, and consumers do not expect a drop in their income.
    • In The Arora Report analysis, if confirmed by other data, high consumer confidence will make it harder for the Fed to cut rates.   

Magnificent Seven Money Flows

In the early trade, money flows are neutral in NVIDIA Corp NVDA and Apple Inc AAPL.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Microsoft Corp MSFT, and Tesla Inc TSLA.

In the early trade, money flows are negative 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 selling stocks 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 selling 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

Oil is rising after a Greek owned ship was hit by a missile in the Red Sea.

The momo crowd is buying oil 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

There was a move of billions of dollars worth of Bitcoin BTC/USD in a single wallet. The speculation is that this is related to Mt. Gox. Mt. Gox is a crypto exchange that collapsed. As much as $9B worth of bitcoin may be sold.

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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