Favorite AI Stock, Hedge Funds Win At The Expense Of Asset Allocators – Investors Discover Massive National Debt

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

Hedge Funds Win

Please click here for a chart of iShares 20 Plus Year Treasury Bond ETF TLT.

Note the following:

• The chart shows that the long bond ETF has fallen to the top band of the support zone.
• Bonds trade inverse to the yield.
• We have been sharing with you in the Capsules that yields at the long end are rising.
• Unless you have been under a rock, you know that over the last few months there has been a chorus of asset allocators in the media singing a song of buying long term bonds. Their thesis has been that 3.5% - 4% yield on a 30 year bond was attractive, and investors needed to lock in that yield by buying long term bonds. They themselves have been buying long term bonds for their clients.
• In contrast to the asset allocators, hedge funds have been aggressively short selling long bonds. As of this writing, the yield on 30 year Treasuries has risen to 4.397%. In absolute terms, the difference between 3.7% and 4.39% may not seem like much, but when you look at it for a 30 year duration, it makes a big difference. This is reflected in the chart of TLT.
• At least temporarily, hedge funds have won the battle at the expense of asset allocators and their clients.
• The immediate reason for rising yields at the long end has been that the momo crowd has all of a sudden discovered that the U.S. has a serious national debt problem.
• At The Arora Report, we got our members out of long bonds a long time ago. Since then signals have been given as tactical trades to buy TLT a few times. You may recall that our strategic position was to buy leveraged inverse ProShares UltraShort 20+ Year Treasury TBT. This position was highly profitable. TBT went from a low of $15.52  in November 2021 to a high of $39.33 in October 2022. As a comparison TBT is trading at $35.52 as of this writing. The Arora Report call for the fixed income portion of the portfolio has been to keep it in short term Treasury bills.
• For those who insist on a 60/40 portfolio and insist on buying bonds, so far, The Arora Report call has been spot on. Due to its importance, the following has been in every Morning Capsule for a while:

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.

• Both hedge funds and asset allocators rushed into Chinese stocks and more importantly Chinese bonds not that long ago. Many Chinese bonds have recently been decimated. Chinese currency yuan has been weakening against the dollar. Chinese stocks have not done well.  ZYX Emerging from The Arora Report has followed China continuously for 16 years. As both hedge funds and asset allocators were rushing into China, our ratings on China were suspended.
• Gloom is spreading in two areas.
  • The potential housing crisis in China. The Chinese housing market is overbuilt and over leveraged. Evergrande, China’s property giant, filed for bankruptcy protection yesterday.
  • Defaults are increasing in the Chinese shadow banking market.
• On the positive side, Applied Materials, Inc. AMAT reported strong earnings. Applied Materials is one of the biggest manufacturers of semiconductor equipment. The demand for semiconductors is exploding due to artificial intelligence investments by companies across the world.  Applied Materials is in the ZYX Buy Model Portfolio by The Arora Report, and AMAT is one of our favorite artificial intelligence stocks to buy. However, this is not a call to buy Applied Materials right here. The position in the portfolio is long from $16.  AMAT traded as high as $143.62 after hours after release of good earnings.  However, the stock is falling this morning in the premarket on the general malaise about tech stocks. Consider waiting for a dip in the buy zone to buy.
• On the negative side for stock market bulls, the momo crowd has finally discovered that yields are rising. They have stopped aggressively buying and are now selling.
• 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 Apple Inc AAPL, Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Microsoft Corp MSFT, NVIDIA Corp NVDA, and Tesla Inc TSLA.

In the early trade, money flows are negative 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 selling stocks in the early trade. Smart money is inactive in the early trade.

Gold

The momo crowd is buying 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 buying 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

There has been aggressive selling in Bitcoin BTC/USD. It has fallen close to $26,000 as of this writing.

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 3🔒, 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.