Trump Saves Apple-Driven Tech Rally From Failing; Opportunities Ahead But Do Not Be A Hero

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

Trump Saves Rally

Please click here for an enlarged chart of Invesco QQQ Trust Series 1 (QQQ).

Note the following:

• The chart shows the Apple Inc (AAPL) driven tech rally.  The rally was triggered by President Trump removing reciprocal tariffs on smartphones, laptops, servers, and certain semiconductors over the weekend. For details, please see yesterday's Morning Capsule.
• Our readers were already ahead of the curve as they knew there was disappointment that the rally was not bigger.
• The chart shows that due to the disappointment of the rally not being bigger, the rally was contained by the micro resistance zone.
• The chart shows that when tech stocks failed to break above the micro resistance zone, selling came in.
• The chart shows when QQQ broke below the micro support zone.
• The chart shows that hunt and destroy algorithms kicked in to take out the stops of those using traditional technical analysis.  No one would put a large amount of cash on a busy sidewalk and not expect it to be stolen – yet this is exactly what the followers of traditional technical analysis do day in and day out.  Then they become frustrated when their stops are taken out.  Please click here to see why traditional technical analysis does not work well anymore.
• The chart shows that after stops were taken out by hunt and destroy algorithms, a rally attempt ensued, as is normally the case.
• The chart shows that this rally attempt failed when tech stocks broke below the micro support zone again.  This failed rally was the trigger for short sellers to push the pedal.  Of course, to the momo crowd every tiny dip is a buying opportunity. Little did the short sellers know that President Trump's comment about auto companies would be interpreted by the market as help for tech stocks.
• The chart shows when the news spread that President Trump said, “I’m looking at something to help car companies with it. They’re switching to parts that were made in Canada, Mexico and other places, and they need a little bit of time, because they’re going to make them here."
• By the time news spread, as shown on the chart, the stock market was already interpreting Trump's statement to mean that if he was going to help car companies, he would also help tech stocks.  This caused the rally shown on the chart.
• The chart shows that the rally did not reach the micro resistance zone shown on the chart.
• The chart shows that so far the pullback has not broken the micro support zone.  The foregoing two points indicate that so far the battle between the bulls and bears is undecided at this time.
  • If QQQ breaks below the micro support zone, short sellers will push the pedal again.
  • If QQQ breaks above the micro resistance zone, the momo crowd will become very aggressive in buying.
• The import and export prices data released at 8:30am ET this morning provides a learning moment for prudent investors.  There are thousands of economic indicators across the globe.  One of the indicators that has received a lot of publicity in the media is import and export prices. Since this data has not made a difference to achieving high risk adjusted returns in recent decades, it is not weighted in our system, in which we are continuously evaluating indicators that are moving the markets, adding indicators, and removing indicators that are no longer useful. Due to the current trade war, in the future, import and export prices may be added to The Arora Report system, but only if it helps achieve high risk adjusted returns.
• The financial media is highlighting the import and export data that was released this morning.  In our analysis, at least for today, investors should ignore this data.  The reason is this data, even though released this morning, is pre-tariffs – this data is meaningless for the current market.  
• This morning Bank of America Corp (BAC) is reporting better than expected earnings.  As full disclosure, BAC is in our ZYX Buy Core Model Portfolio.  It is long from $7.69. 
• Consider not making the biggest mistake we are seeing many investors make at this time.  In our analysis, the biggest mistake at this time is to follow through with the urge to be a hero in the stock market.  There are times to be a hero in the stock market and aggressively buy stocks – right now is not one of them.  There are plenty of risks ahead.  If nothing else, keep in mind what we have been sharing with you and illustrating with examples – change has unintended consequences.  Even if you are a 100% believer in the changes President Trump is initiating and do not care about losses in the short term, as a prudent investor, take into account that there will be unintended consequences that are difficult to foresee.  Investors are better off buying a few percent higher from here if the risk decreases compared to aggressively buying now when the risk of a retest of the recent lows and the potential of a break below the recent lows is high. At this time, all buying should be very thoughtful and in moderation. 

Magnificent Seven Money Flows

In the early trade, money flows are positive in Alphabet Inc Class C (GOOG), Meta Platforms Inc (META), and Microsoft Corp (MSFT).

In the early trade, money flows are neutral in NVIDIA Corp (NVDA).

In the early trade, money flows are negative in Amazon.com, Inc. (AMZN), Tesla Inc (TSLA), and Apple Inc (AAPL).

In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust (SPY) and Nasdaq 100 ETF (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).

Bitcoin

Bitcoin is seeing buying.

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.