Prudent Investors Pay Attention; World's Most Respected Banker Pours Gas Over Bond Fire; Oil Surges

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

Gas Over Bond Fire

Please click here for an enlarged chart of iShares 20+ Year Treasury Bond ETF TLT.

Note the following:

• The chart shows bonds recently fell below the danger zone into zone 4 (support).
• The chart shows there has been a relief rally, bringing bonds back up above zone 4.  The relief rally in bonds helped the stock market rally.
• Jamie Dimon, CEO of JPMorgan Chase & Co JPM, is the world's most respected banker.  Dimon has poured gasoline on the fire that is raging in the bond market.  Dimon sees a crack in the bond market sometime in the future.  Unless there are substantial changes in the U.S. government's borrowing and spending, Dimon sees a reckoning for the U.S.
• In our analysis, Dimon is right, but here is the key for investors – the timing of the reckoning is not predictable.  The government has enough power and money printing abilities to stave off any reckoning for years.  However, the bond market has the potential to be very powerful and also has the power to deteriorate quickly.  For example, the bond market reacted negatively when the House passed President Trump's "big beautiful bill."  The reason for the bond market's reaction was that the bill increased the deficit and borrowing.  It was the bond market's reaction that prevented the stock market from going to new highs.
• When the reckoning happens, most investors will likely lose their shirts just like they lost big in 2008 when S&P 500 lost 50%.
• Steel stocks such as Cleveland-Cliffs Inc (CLF), Nucor Corp (NUE), and Steel Dynamics Inc (STLD) are surging this morning after President Trump doubled tariffs on steel and aluminum to 50%.  Steel stocks overseas are plunging.   These tariffs are likely to prove catastrophic for steel mills in Canada.  The steel industry directly employs 23,000 Canadians and is responsible for another 100,000 jobs indirectly.
• Blind money is the money that pours into the stock market on the first two days of a new month without any analysis and irrespective of market conditions.  Most of the blind money is invested in the afternoon.  Traders know this and they buy stocks in the morning to sell to blind money at a higher price in the afternoon.
• ISM Manufacturing Index was released at 10am ET. 

Magnificent Seven Money Flows

In the early trade, money flows are negative in Apple Inc (AAPL), Amazon.com, Inc. (AMZN), Alphabet Inc Class C (GOOG), Meta Platforms Inc (META), Microsoft Corp (MSFT), NVIDIA Corp (NVDA), 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

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).

Oil

Oil is surging on a drone attack by Ukraine on air bases deep inside Russia, including Siberia.

Today's Best Finance Deals

Over the weekend, OPEC+ decided to raise production against objections from Russia.

In our analysis, OPEC+ raising production is helping move oil prices higher because U.S. shale producers may produce less if prices go lower.  Moreover, the OPEC+ production increase is inline with expectations.

Bitcoin

Bitcoin is range bound.

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.