Stocks In China Flying, Lifting Sentiment In Stock Markets Across The Globe, AI And Weight Loss Drugs Get Hotter

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

Sentiment Lifting

Please click here for an enlarged version of the chart of iShares China Large-Cap ETF FXI.

Note the following:

• Sentiment is lifting in stock markets all across the globe as Chinese stocks fly.
• The chart shows that Hong Kong stocks have broken above the trendline. This is technically a positive.
• The chart shows that Hong Kong stocks appear to be making a higher low. This is technically a positive.
• Stocks in Hong Kong closed up 4% and up 3.2% in Mainland China. Small caps are leading in a sign of optimism.
• The news making Chinese stocks fly is that Chinese President Xi is to discuss stocks with regulators. Also, an arm of the Chinese government is going to buy more ETFs.
• In The Arora Report analysis, the probability is high that the Chinese government is about to start a forceful campaign to lift stocks. However, with the Chinese Communist Party there is always a risk that they may say one thing and do another.
• ZYX Emerging has continuously covered China for 17 years. Please see ZYX Emerging for short term, medium term, and long term ratings as well as buy zones.
• Both weight loss drugs and AI stocks are getting hotter.
  • Earlier today, NVIDIA Corp NVDA crossed $700. NVDA is in The Arora Report ZYX Buy Model Portfolio. 
  • Weight loss drug company Eli Lilly And Co LLY reported earnings better than the consensus. Even after a massive run, the stock is up another 5.49% as of this writing in the premarket. LLY is in The Arora Report ZYX Buy Model Portfolio.
• China, AI, and weight loss drugs are adding to the already extreme positive sentiment in the stock market. As we have written before, the following points are important.
  • At extremes, sentiment is a contrary indicator. In plain English this means that extreme positive sentiment is a sell signal.
  • Sentiment is not a precise timing indicator.
  • As important as sentiment is, no one should act only on sentiment. Investors should do a 360 degree analysis, such as the one provided by the adaptive ZYX Asset Allocation Model with inputs in ten categories.
• ISM Services PMI came at 53.4% vs. 52% consensus. Here are the key points:
  • This is a leading indicator and carries heavy weight in The Arora Report models.
  • A number above 50% indicates expansion.
  • In The Arora Report analysis, digging below the surface, this data indicates the service economy is becoming stronger.  
  • The price index rose to 64.0% from 56.7%. In The Arora Report analysis, this is of concern as this indicates purchasing managers are expecting a significant rise in prices for services. This runs counter to the narrative that inflation is coming down.  Inflation is coming down in goods and housing but continues to be stubborn in services.  
• In The Arora Report analysis, even though indexes are marching higher, there is significant weakness under the surface in a vast majority of the stocks.  
• There is significant Fed speak ahead. Loretta Mester, Neel Kashkari and Susan Collins will be speaking today.
• 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, Alphabet Inc Class C GOOG, and NVDA.

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

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

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 buying stocks in the early trade. Smart money is inactive in the early trade.

Gold

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

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 seeing buying on positive sentiment emanating from tech stocks.

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