Opportunity In Japan After Breakout Triggered By Trade Deal With U.S., Trump's AI Speech Ahead

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

Opportunity In Japan

Please click here for an enlarged chart of iShares MSCI Japan ETF (NYSE:EWJ).

Note the following:

• The chart shows the jump up in EWJ on the news of a trade deal between the U.S. and Japan.
• The chart shows EWJ has broken out above zone 1(previously resistance).
• The chart shows EWJ could pull back to zone 2 (support) if the breakout is not sustained.
• RSI on the chart shows EWJ is barely overbought after the trade deal jump, indicating EWJ has room to run.
• The U.S. Japan trade deal reduces tariffs from 27.5% to 15% on Japanese auto imports.  It also includes a $550B investment package from Japan.  There are still unresolved tariffs on aluminum and steel.
• Investors excited about Japan need to factor in increased political instability.  On July 20, Prime Minister Shigeru Ishiba's Liberal Democratic Party (LDP) lost the parliamentary election for the upper house.  The LDP lost the majority in the lower house in October 2024.  For the first time since 1955, the LDP-Komeito coalition does not control both chambers of Parliament.
• As full disclosure, Japan ETF EWJ is in our ZYX Allocation Core Model Portfolio.  A new buy zone for EWJ was published earlier today.  For the long-term investor, Japan is a good opportunity for the following reasons:
  • Improved corporate governance and push for capital efficiency
  • Strategic trade agreements creating diversification in export markets
  • Undervalued equities
  • Weak yen coupled with the Bank of Japan's reluctance to raise interest rates
  • Home to companies leading in automotive (TM, HMC), electronics (SONY), and robotics (FANUY) that will benefit from the shift to EVs, AI, and automation.
  • Boost in corporate pricing power and consumer spending from transition from deflation to moderate inflation
• President Trump is expected to give a speech on AI today at the "Winning the AI Race" event.  There are expectations that President Trump will sign related executive orders ahead of the speech.
• Meme crowd exuberance has kicked into high gear.  Pumpers are trying very hard to turn several stocks into meme stocks.  Remember, the end result of a meme craze is pumpers make a lot of money and gullible investors lose a lot of money.  Top stocks on our radar include Kohls Corp (KSS), Opendoor Technologies Inc (OPEN), Krispy Kreme Inc (DNUT), GoPro Inc (GPRO), Quantumscape Corp (QS), Rocket Companies Inc (RKT), Wayfair Inc (W), Berkshire Hathaway Inc Class B (NYSE:BRK), and Rivian Automotive Inc (NASDAQ:RIVN).
• AT&T Inc (T) reported earnings roughly inline with consensus but is guiding lower.
• Important earnings after hours today are Alphabet Inc Class C (GOOG), Tesla Inc (TSLA), T-Mobile Us Inc (TMUS), IBM Common Stock (IBM), and Chipotle Mexican Grill Inc (CMG).
• Important earnings to be released in the premarket tomorrow are American Airlines Group Inc (AAL), Dow Inc (DOW), Honeywell International Inc (HON), L3Harris Technologies Inc (LHX), and Mobileye Global Inc (MBLY).

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc (AAPL), Amazon.com, Inc. (AMZN), and NVIDIA Corp (NVDA).

In the early trade, money flows are neutral in Meta Platforms Inc (META) and Microsoft Corp (MSFT).

In the early trade, money flows are negative in GOOG and TSLA.

In the early trade, money flows are positive 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

API crude inventories came at a draw of 0.577M barrels.

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.

Benzinga Disclaimer: 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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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.