Pay Attention To Protecting Your Wealth, Trouble In Libya Impacts The U.S.

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

Protect Your Wealth

Please click here for an enlarged chart of U.S. dollar index (USDX, DX, DXY).

Note the following:

• Investors need to pay attention to the dollar to protect their wealth if their wealth is in dollars or tied to the dollar.
• The chart is a weekly chart to give you a longer term perspective.
• The chart shows the dollar is at the top band of the support zone.
• The chart shows the dollar made a double top.  This is a negative pattern.
• RSI on the chart shows the dollar is oversold, which could lead to a bounce in the short term.
• The chart shows that if the support zone is broken, there is significant room for the dollar to fall.
• The U.S. owes its economic prosperity and its status as the sole superpower in large part to the dollar being the world's reserve currency.
  • Most of the world's trade is conducted in dollars.
• China is determined to replace the U.S. as the world's sole superpower.  The Chinese and Russian governments understand that the key to achieving their objectives is to weaken the dollar and replace the dollar as the reserve currency.
  • China and Russia have accelerated their attacks on the U.S. dollar.  They have the support of BRICS.  BRICS is a bloc that has consisted of Brazil, Russia, India, China, and South Africa.  Six more countries have joined the BRICS bloc.  The new countries are Iran, Egypt, Ethiopia, Argentina, Saudi Arabia, and U.A.E.
• All investors should take steps to protect their wealth.  Investors should consider emerging markets, other developed markets, currencies when appropriate, gold, commodities, and commodity producers including metal producers, as exemplified in The Arora Report's ZYX Allocation and ZYX Emerging Model Portfolios.
• The world is interconnected.  Oil prices are jumping about 3% this morning on trouble in Libya. Libya is a divided country with two rival governments – Tripoli based government and Benghazi based government.  The Benghazi government has shut down all crude oil exports.  This is in response to the Tripoli based government replacing the leadership of the central bank.
  • Many media headlines are wrong in claiming that oil prices are jumping on Israel conducting a preemptive attack on Lebanon on Sunday and Hezbollah responding.  The conflict between Israel and Hezbollah has no direct impact on oil unless Iran directly gets involved. So far, Iran has not been directly involved.
  • The real reason oil prices are jumping is coming from Libya.
• Investors need to pay attention to oil prices because one of the reasons behind inflation coming down is the lower price of oil.  The Fed is planning to cut rates because of lower inflation.  The stock market has been going up on hopes of a rate cut.  If the price of oil shoots up, inflation will rise, limiting the Fed's ability to cut rates.  Such a scenario will be negative for the stock market, which is trading at a very high valuation.   
• Durable goods data is mixed.
  • Durable Orders came at 9.9% vs. 4.0% consensus.
  • Durable Orders Ex-Transport came at -0.2% vs. 0.1% consensus.

Magnificent Seven Money Flows

In the early trade, money flows are neutral in Apple Inc AAPL, Alphabet Inc Class C GOOG, Microsoft Corp MSFT, NVIDIA Corp NVDA.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN, Meta Platforms Inc META, and and Tesla Inc TSLA.

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

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust GLD.  The most popular ETF for silver is iShares Silver Trust SLV.  The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is approaching $64,000.  The recent rise has rekindled hopes of bitcoin making a new high and then going to $100,000.

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.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

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 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.