Hopium Buying - India Ready To Cut Tariffs to 4%, Trump Floats China Tariffs At 80%, UK Not A Model

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

Hopium Buying

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 the stock market is at the top band of resistance zone 2.
• The chart shows that the stock market is approaching the 200 day moving average.  A legion of investors believe in the myth of the 200 day moving average.  Such investors are waiting patiently for the stock market to go above the 200 day moving average, so they can aggressively buy stocks.
• RSI on the chart shows that the stock market has pulled back from an extreme overbought level.  Now, the stock market has room to move in either direction.
• There is aggressive buying in the stock market on trade hopium about India, China, and the U.K.
• After conflict with Pakistan, India is motivated to clinch a quick trade deal with the U.S.  Here are the key points:
  • If the U.S. were to support India, it would put pressure on Pakistan to deescalate the current conflict.
  • The U.S. needs India to align against China.
  • India is the prime destination for U.S. companies moving supply chains out of China.
  • India has grown to become the world's fifth largest economy.
  • India is proposing to give preferential treatment to 90% of U.S. goods.
  • India is proposing to cut tariffs to 4% from about 13% now.
  • The U.S. is already India's largest trading partner.  India currently runs a $45.7B trade surplus with the U.S.
  • One of India's big motivations is AI.  India wants the U.S. to treat India the same as the U.K., Japan, and Australia.
• Trade negotiations are ahead with China this weekend.
  • Ahead of trade negotiations, President Trump is floating the idea of cutting China tariffs from 145% to 80%.
  • Unlike India, China sees itself as equal to the U.S. and is likely to be tougher in negotiations.
  • China is unlikely to accept a lopsided deal like the U.K. did.
• Contrary to the assertions, the fact is that the U.S. deal with the U.K. is not a model for other trade deals.  Here are the key points:
  • In 2024, the U.S. imports from the U.K. were $68.1B, and exports were $79.9B.  This resulted in a trade surplus of $11.8B in the U.S.'s favor.
  • With many other important countries, the U.S. has a trade deficit.
  • The U.K. was overly eager to strike a trade deal due to idiosyncratic issues.  As an example, you will now be able to buy a Rolls-Royce car in the U.S. without tariffs.  Congratulations if you are in the market to buy a Rolls-Royce!  However, only about 1500 Rolls-Royce cars are sold in the U.S. per year.  The U.K. will be allowed to export 100K cars a year to the U.S. without tariffs. As a reference, about 16M cars are sold in the U.S. per year.
  • The U.K. trade deal does not accomplish any of President Trump's stated goals –  reducing the trade deficit, raising revenues from tariffs, and bringing manufacturing to the U.S.
  • The U.K. trade deal was about President Trump's eagerness to put a win on the board and create a positive perception.  President Trump succeeded at creating a positive perception.
• According to White House Economic Advisor Kevin Hassett, 24 trade deals are close to completion.  Of note is that Hassett repeats the incorrect assertion that the U.K. deal will be the model.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc (AAPL), Amazon.com, Inc. (AMZN), Meta Platforms Inc (META), Microsoft Corp (MSFT), NVIDIA Corp (NVDA), and Tesla Inc (TSLA).

In the early trade, money flows are neutral in Alphabet Inc Class C (GOOG).

In the early trade, money flows are positive in S&P 500 ETF (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).

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Earn 7.2% — No Matter What the Fed Does

Markets expect rate cuts — but your earnings don’t have to suffer. Lock in 7.2% until 2028 from ten individual bonds.

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Bitcoin

Bitcoin is above $100K and seeing aggressive buying.  The hopium is that bitcoin whales will take advantage of low liquidity over the weekend and run bitcoin to $108K.

Arora Protection Band And What To Do Now

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