The market is showing signs of volatility as we navigate a complex landscape of economic, geopolitical, and technological shifts. Let’s break down some key insights for savvy investors seeking to gain an edge.
Tech Stocks Approach Resistance
The Invesco QQQ Trust Series 1 (QQQ), a benchmark for tech stocks, is nearing resistance levels. This is notable as the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) have hit new highs, while QQQ lags behind. This underperformance suggests caution, further supported by the overbought RSI (Relative Strength Index) for QQQ.
Long Bonds Continue to Decline
As predicted, long bonds are experiencing further declines. This could impact the stock market if the Fed doesn’t adopt a more dovish stance. It’s crucial for investors to stay informed about Fed pronouncements.
Middle East Tensions Escalate
The situation in Lebanon and Northern Israel is escalating, with Hezbollah and Israel on the brink of a full-scale war. U.S. diplomacy is actively seeking to prevent further conflict. While the “momo crowd” (those following momentum-driven investing) might be oblivious, prudent investors should be monitoring developments in the Middle East closely.
Global Stimulus Hopes Fuel Sentiment
Stimulus hopes in China have boosted global sentiment. The People’s Bank of China (PBC) has cut the 14-day reverse repurchase rate by 10 basis points to 1.85%, and central bank governor Pan Gongsheng is scheduled to hold a conference tomorrow.
European Economic Contraction
European stocks are holding steady despite an unexpected economic contraction. Flash PMI (Purchasing Managers’ Index) data for the Eurozone reveals a contraction in both manufacturing and services sectors. However, hopes for further rate cuts are keeping markets buoyant.
Money Flows: Magnificent Seven
Early trading is showing positive money flows into Alphabet (GOOG), Meta Platforms (META), Nvidia (NVDA), and Tesla (TSLA), while Amazon (AMZN) remains neutral. Apple (AAPL) and Microsoft (MSFT) are seeing negative flows. However, SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust Series 1 (QQQ) are exhibiting positive flows.
Smart Money vs. The Momo Crowd
Investors can gain an edge by analyzing money flows in both SPY and QQQ. But to truly differentiate themselves, they need to understand where smart money is moving. This includes identifying their positions in gold, silver, and oil, tracked through ETFs like SPDR Gold Trust (GLD), iShares Silver Trust (SLV), and United States Oil ETF (USO).
Bitcoin Gets a Boost
Harris’s increased involvement in the crypto space, likely driven by heavy campaign contributions from the crypto industry, is leading to buying pressure on Bitcoin (BTC/USD).
Protection Bands: A Safety Net
It’s crucial to look ahead, not backward. Consider maintaining strong, long-term positions while implementing a protection band. This could involve holding cash, Treasury bills, short-term tactical trades, and short to medium-term hedges. Your protection band should reflect your individual risk tolerance, with a higher band for conservative investors and a lower band for aggressive investors. Remember, holding sufficient cash allows you to capitalize on new opportunities.
Adjusting Hedges and Traditional Portfolios
When adjusting hedge levels, consider implementing partial stop quantities for stock positions (excluding ETFs). Utilize wider stops for remaining quantities and allow more room for high beta stocks, those that move more than the market.
Probability-based risk-reward analysis adjusted for inflation does not support a long duration strategic bond allocation at this time. Investors who want to stick to a 60/40 stock/bond allocation may want to focus on high-quality bonds with a duration of five years or less. More sophisticated investors might consider using bond ETFs for tactical purposes rather than strategic holdings.
The Arora Report’s Track Record
The Arora Report boasts a solid track record, having accurately called major market events, including the artificial intelligence rally, the 2023 bull market, the 2022 bear market, the new stock market highs after the 2020 virus low, the virus drop in 2020, the DJIA rally to 30,000, the start of a mega bull market in 2009, and the financial crash of 2008.
