Wall Street Wakes Up To The Risk In The Stock Market – Hoping For A Dovish Powell To Run Up Stocks

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

Waking Up To Risk

Please click here for an enlarged version of the chart of iShares 20+ Year Treasury Bond ETF TLT.

Note the following:

• Focus on the downward sloping trendline on the chart.
• According to momo gurus, the reverse was supposed to happen.  In plain English, this means if the predictions of momo gurus were correct, there would have been an upward sloping trendline.
• The downward trendline on the chart shows that the risk to the stock market has been progressively increasing.  However, investors have been asleep.  As the quarter turned, all of a sudden some investors have woken up to the risk.  The trigger for investors waking up was smart money selling on the first day of a new quarter.  As usual, The Arora Report members were ahead of the curve from the Morning Capsule that was published prior to the market open on April 1.  We wrote:

Prudent investors should note that today, at least temporarily as of this writing, is a departure from the traditional pattern.  As of this writing, the rally in stock futures is fizzling.  The reason is that smart money is selling into the strength.

• The chart shows that TLT has fallen into the support zone.
• It is extremely critical for the support zone to hold for the stock market to hold up.  Stay tuned to The Arora Report for updates. 
• Automatic Data Processing Inc ADP is the largest payroll processor in the country and uses its data to give an advanced glimpse of the jobs picture ahead of the official jobs report that will be released on Friday at 8:30am ET.  ADP employment data came stronger than expected.  ADP employment change came at 184K vs. 150K consensus.
• ISM Non-Manufacturing PMI will be released at 10am ET.  The consensus is 52.6%.  If the data is stronger and inflationary, it will be a headwind for the stock market.  On the other hand, if the data is weaker, expect a rip roaring rally.
• Powell will be speaking at 12:10pm ET today.  Powell’s speech may be market moving.  Powell has become the most dovish Fed member.  Investors are hoping that Powell will be extra dovish and calm their nerves.
• The Fed’s Bostic maintains that he sees only one rate cut in the fourth quarter.
• Several other Fed officials are speaking today but Powell is likely to overshadow them.
• 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 positive in Meta Platforms Inc META.

In the early trade, money flows are neutral in Apple Inc AAPL and Microsoft Corp MSFT.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, 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 buying stocks in the early trade.  Smart money is inactive in the early trade.

Gold

There is aggressive buying in silver.  As full disclosure, Silver ETF SLV is in The Arora Report's ZYX Buy Model Portfolio.  The position has nice profits. 

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

API crude oil inventories came at a draw of 2.286M barrels vs. consensus of a draw of 2M barrels.

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

Bitcoin BTC/USD is range bound.  Bitcoin whales have been taking profits by selling bitcoin to retail investors.  Retail investors are buying because they do not understand that whales control bitcoin.

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 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.

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 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.

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