Stock Buying On Bad News From China, Market Makers Hedged For The First Time In 2023

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

Market Makers Hedged

Please click here for a chart of Invesco QQQ Trust Series 1 QQQ.

Note the following:

• The chart shows that QQQ touched the low band of the resistance zone and backed off.
• The chart shows that the trendline supporting the recent rise is now broken.
• RSI on the chart shows that in the very short term the stock market has become oversold.
• Early this morning, the momo crowd aggressively bought stock futures on bad news from China.
  • The latest news is that Zhongzhi Enterprise, a top wealth manager, is unable to make payments on high yield investment trusts it sold to wealthy Chinese.
  • In response to this situation, the banking regulator in China has set up a task force.
  • In separate news, Country Garden, one of the biggest real estate developers in China, is having difficulty making payments on some of its bonds.
• The news that the Chinese regulator is setting up a task force got the momo crowd excited to buy U.S. stock futures aggressively in the early morning. The momo crowd has a good reason to buy.
  • The chart shows when Silicon Valley Bank failed and the banking crisis occurred in the U.S.
  • In response to the bank failures, the Fed flooded the system with liquidity.
  • Some of the liquidity went into the stock market at the same time the AI frenzy was accelerating. This caused the rally that started on March 8 as shown on the chart.
  • The momo crowd is hoping that the stock market will now run up because of government intervention to stop more failures in China. 
• As the morning progressed, smart money took advantage of the strength generated by momo crowd buying and started selling. Smart money selling caused the early morning rally in stock futures to evaporate as of this writing.
• In a separate development, for the first time in 2023, market makers are gamma hedged. This is a major development, and prudent investors should pay attention.  The reason is that about two thirds of the magnitude of the stock market rally in 2023 is attributable to market mechanics. One of the market mechanics that has helped the stock market run up is short gamma squeeze.  For those who want to understand this deeply, there is a new podcast titled “Market Mechanics: Impact Of Dealers’ Gamma Position Change On The Stock Market” in post production. The podcast will be available in Arora Ambassador Club. The club has several other podcasts to help you understand market mechanics in-depth.  
  • In plain English this means that some of the fuel that led to the stock market rise this year is now spent.  
• As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.  Please scroll down to see the protection band.

Magnificent Seven Money Flows

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

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

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is selling stocks in the early trade.

Gold

The momo crowd is like a yoyo in gold in the early trade. Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV. 

Oil

The momo crowd is selling oil in the early trade. Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF USO

Bitcoin

Bitcoin BTC/USD is range bound.

Markets

Our very, very short-term early stock market indicator is negative. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding 🔒 in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time. To see the locked content, please click here to start a free trial.

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.

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 2008 financial crash, the start of a mega bull market in 2009, the COVID crash, the post-COVID bull market, and the 2022 bear market.  Please click here to sign up for a free forever Generate Wealth Newsletter.