Change In Yield Control In Japan Will Impact U.S. Stock Market, Dimon Wants To Shut Down Crypto

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

Yield Control

Please click here for a chart of Invesco CurrencyShares Japanese Yen Trust FXY.

Note the following:

• We have been sharing with you that what the Bank of Japan (BOJ) does will have a major impact on the U.S. stock and bond markets.
• The chart shows that the downward trendline has now been decisively broken. The downward trendline has been in place because the yen has been artificially suppressed by BOJ.
• The chart shows that an upward trendline is now in place.
• The chart shows a break away move in yen overnight on speculation that BOJ is about to abandon yield control. The speculation was triggered by BOJ Governor Ueda indicating that the policy would “become even more challenging from the year end and heading into the next year.”
• In The Arora Report analysis, now there is a 40% probability of a significant change in BOJ policy.
• The up move shown on the chart is equivalent to the yen rising by about 1.5% against the dollar.  This is the biggest one day move since January.  For a currency, a 1.5% move is a huge move.
• On the yen move, stocks in Asia fell first, which then caused a downdraft in Europe. Without the yen move, there would have been a rip roaring rally in the U.S. stock market today. The yen move is suppressing the rally attempt.
• Since the momo crowd is in control and the momo crowd does not do any analysis, the momo crowd is oblivious to the yen move and is aggressively buying the slight dip in stocks in the early trade.
• As we have been sharing with you, a significant amount of money is borrowed in yen and invested in U.S. stock and bond markets. This strategy becomes less attractive as the yen moves higher and rates in Japan go higher.
• In an important development, JPMorgan Chase & Co JPM CEO told Congress that he would shut down crypto if he had the power to do so. It is back to the future in bitcoin. Please read the bitcoin section below.  
• 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.

Jobless Claims

Initial claims came at 220K vs. 223K consensus. Initial claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.

In The Arora Report analysis, this leading indicator runs counter to the consensus in the stock market of aggressive rate cuts by the Fed next year. This data makes tomorrow’s jobs report even more important. 

Europe

We previously shared with you that now six rate cuts are expected in Europe next year. Euro area GDP came at -0.1% vs. 0.0% consensus. This new data supports rate cuts in Europe.

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 mixed 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 aggressively 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 yen move is bringing buying into 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 yen move is bringing buying into oil.

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

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

In cryptos, it is back to the future again. Yesterday, there were several anecdotal reports of retail investors prematuring cashing in CDs to buy bitcoin at $45,000 as well as other cryptos. This is prompted by crypto promoters pushing the narrative that bitcoin would move straight to $50,000 and to $100,000 by the year end. This morning, there is slight disappointment on Bitcoin BTC/USD pulling back to $43,252.  

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.