Tesla Bounces On Musk-Trump Truce Talk; Aggressive Buying On Jobs Report - A Lagging Indicator

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

Buying On Lagging Indicator

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 remains below zone 1 (resistance).
• RSI on the chart shows the stock market is now overbought.  It still has room to run, but could also pullback.
• Zone 1 is the magnet for the momo crowd.  As of this writing, the momo crowd is aggressively buying stocks, trying to push the stock market to the magnet.
• Wall Street is jubilant that a new high is in sight.
• Yesterday, Tesla Inc TSLA stock fell 14.26% as the breakup between President Trump and First Buddy Elon Musk played out in public.  Overnight, TSLA stock saw aggressive buying on indications that both President Trump and Musk might be open to a truce.
• The Trump-Musk acrimony had a significant negative impact on the entire stock market yesterday.  This morning, the stock market has forgotten it all.  In our analysis, considering that Musk said that President Trump was in the Epstein files and endorsed President Trump's impeachment, it will be very difficult to rebuild the relationship.
• The phone call between President Trump and President Xi of China brought in buying in the stock market.  Chinese media is reporting that President Xi lectured President Trump on how the U.S. should behave.  There is jubilation in China and a claim of President Xi's victory over President Trump.  There is no confirmation or denial from the U.S. side.
• Microsoft Corp (MSFT) stock hit an all time high.  As full disclosure, MSFT was one of the stocks we recommended to buy on April 9 when it was at $369.50.  Since then, MSFT stock is up 26.6%.
• The jobs report was stronger than expected.  Here are the details:
  • Non-farm payrolls came at 139K vs. 130K consensus.
  • Non-farm private payrolls came at 140K vs. 123K consensus.
  • Unemployment rate came at 4.2% vs. 4.2% consensus.
  • Average work week came at 34.3 vs. 34.3 consensus.
  • Average hourly earnings came at 0.4% vs. 0.3% consensus.
• Even though there is aggressive buying on the jobs report, in our analysis, prudent investors should consider the following:
  • The jobs report is a lagging indicator.  
  • The jobs report historically stays strong all the way to the start of a recession and then falls quickly.
  • The best way to understand this is to think of a steep fall off of a cliff.  
  • Our adaptive ZYX Asset Allocation Model is based on leading indicators.  
• In our analysis, prudent investors should also pay attention to rising bond yields this morning after the jobs report even though the market is oblivious so far.
• Of importance to the AI trade is that Broadcom Inc (AVGO) reported solid earnings inline with consensus but below whisper numbers.  Normally, a stock like AVGO goes down if it reports less than whisper numbers.  So far as of this writing, AVGO is only down about only 3% due to extreme bullishness that is prevailing in the stock market.
• Lululemon Athletica Inc (LULU) reported earnings inline with consensus but below whisper numbers.  Lululemon also cut guidance.  LULU stock is down over 18% as of this writing.  Lululemon earnings are often an indication of the high end consumer.  However, the guidance cut seems to be driven by tariffs and Chinese consumers, not the U.S. consumer.

Europe

Stronger than expected GDP in the Eurozone is adding to bullishness in the stock market. Eurozone GDP came at 0.6% quarter-over-quarter vs. 0.3% consensus.

Magnificent Seven Money Flows

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

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

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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).

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.