Stock Market Pauses After Bond Short Squeeze Triggered Epic Rally, Apple Recovers

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

The Next Trigger

Please click here for a chart of SPDR S&P 500 ETF Trust SPY which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The chart shows that the stock market has now moved above the top support zone.
• The chart shows that the move down below the top support zone in late October has temporarily proven to be a bear trap.
• RSI on the chart shows that the stock market is overbought. Overbought markets tend to be vulnerable to the downside.
• As we have shared with you before, three macro events triggered a vicious short squeeze in bonds, which in turn, led to an epic rally in stocks.
• In The Arora Report analysis, the first leg of the short squeeze in bonds is now over. 
• There is Fed speak from Neel Kashkari and Austin Goolsbee. Powell will be speaking later in the week.
• It is clear from the Fed speak that there is not clarity at the Fed regarding the following:
  • The real reason behind the rapid rise in long term rates in October
  • Implications now for future Fed policy of long term rates pulling back since Wednesday last week
• In The Arora Report analysis, the stock market is looking for a trigger for the next move. 
• On the positive side, Apple Inc AAPL has recovered after a weak earnings report. In The Arora Report analysis, it is important to pay attention to the price action in AAPL because it is an indication of investor sentiment.
• On the earnings front there is positive news in three areas important to the economy.
  • Data analytics company Datadog Inc DDOG reported good earnings. This is bringing buying this morning in many stocks that have a positive readthrough from Datadog such as Snowflake Inc SNOW and Mongodb Inc MDB. SNOW and MDB are in the ZYX Buy portfolio that surrounds that core Model Portfolio.
  • One of the largest home builders DR Horton Inc DHI is guiding Q1 revenues above expectations. Home builders continue to benefit from a lack of supply of existing homes because homeowners who have locked in a 3% mortgage do not want to sell.
  • Earnings from semiconductor company NXP Semiconductors NV NXPI are inline with expectations. NXPI is a major supplier of semiconductors to the automotive industry. After bad earnings from ON Semiconductor Corp ON and Wolfspeed Inc WOLF, the fear was that NXPI would report bad earnings.
• 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 Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, and Microsoft Corp MSFT.

In the early trade, money flows are negative in Apple Inc AAPL, NVIDIA Corp NVDA, and Tesla Inc TSLA.

In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust 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 selling 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 selling 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 🔒. Whichever direction the market starts moving, Wall Street machines will jump in that direction, exaggerating the move. 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 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.