Stock Market Investors Nervous About Potential Israeli Attack On Iran

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

Potential Israeli Attack

Please click here for an enlarged chart of oil ETF United States Oil ETF USO.

Note the following:

• The chart shows when Iran retaliated by sending about 180 ballistic missiles. The attack was in response to Israel killing Hezbollah leader Hassan Nasrallah.
• The chart shows that oil has continued to rise as anxiety builds about potential Israeli retaliation.
• This morning, the anxiety has spilled into the stock market.
• From our sources, it appears that Israel sees a once in a generation opportunity to attack Iran's nuclear installations.  The Biden administration and European governments are trying their best to restrain Israel.
• This morning, concern in the stock market is building that if Israel is restrained from attacking Iran's nuclear facilities, Israel may attack Iran's oil infrastructure. 
• After Friday's strong jobs report, the concern is that if oil prices also rise, the Fed will not be able to lower interest rates.  The stock market's current valuation is based on lower interest rates.  
• In the early trade, there is selling pressure due to Middle East concerns.
• The yield on 10 year Treasuries has crossed 4%.  This is important because stock market bulls were hoping for yields to fall to about 3.5% by now.  Please click here to see the Morning Capsule from October 3 for details.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Tesla Inc TSLA.

In the early trade, money flows are neutral in Meta Platforms Inc META.

In the early trade, money flows are negative inApple Inc AAPL, Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, NVIDIA Corp NVDA, and Microsoft Corp MSFT.

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

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 range bound.

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.