Look Ahead — Prepare For Market Mechanics That Are Driving The Stock Market Higher To End

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

Look Ahead

Please click here for a chart of VanEck Semiconductor ETF SMH.

Note the following:

• Semiconductors are the leading sector.  Advances in semiconductors are also at the core of the artificial intelligence revolution. Therefore prudent investors always pay attention to semiconductors. 
• The chart shows a decisive up move in semiconductors after the breakout.
• RSI on the chart shows semiconductors are very overbought. Overbought markets tend to be vulnerable to the downside.
• Market mechanics are very powerful and have been the primary force driving the stock market higher. The chart of semiconductors illustrates the sharp move up since the end of October. The easiest way to learn about market mechanics is to listen to the podcasts in Arora Ambassador Club.  Due to their high value, Wall Street professionals keep market mechanics secret. There is very little credible and useful information available publicly. 
• Market mechanics that have been driving the stock market higher are going to end no later than December 29, 2023. 
• The smartest of smart money recognizes that these market mechanics are going to end, so they start acting before the market mechanics end. Momo crowd is always oblivious, and the smartest of smart money simply takes advantage of the momo crowd.
• New market mechanics will start on January 2, 2024.
• Here are some of the steps that may need to be taken prior to the end of the year or immediately after the new year starts.
  • Raising hedges
  • Raising cash
  • Taking profits on tactical positions
• This is simply a heads up. We will provide more guidance as more data becomes available.
• In The Arora Report analysis, the start of the new year will likely be the same as every other new year after a strong year for the stock market — if the stock market starts going down, everyone will jump on the selling bandwagon; if the stock market starts going up, everyone will buy.  If the stock market starts going down, there will be additional selling pressure from selling by those who want to sell stocks but are postponing the selling to 2024 for tax reasons. 
• 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. 

Strong Housing Starts

Housing starts are very strong. Housing starts came at 1.56M vs. 1.36M consensus.  

Building permits came at 1.46M vs. 1.46M consensus. 

Magnificent Seven Money Flows

In the early trade, money flows are positive 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 positive 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 🔒 in the early trade. To see the locked content, please click here to start a free trial.

Gold

The momo crowd is buying gold in the early trade. Smart money is 🔒 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 🔒 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 🔒. 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.

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 seven 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.

This article is from an external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.