Here Is What Is Likely To Happen After S&P Crosses $5000, Prices Drop At Fastest Rate Since 2009 In China

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

S&P 500 At 5000

Please click here for an enlarged version of the 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 S&P 500 is comfortably above the top band of the support zone.  
• The chart shows that the move up is on lower volume. This is a negative. 
• Historically, when S&P 500 hits the next 1000 benchmark, the median return is as follows:
  • 0.57% after one week
  • 2.00% after one month
  • 3.5% after three months
  • 7.73% after six months
• The above data is only history, and no one should depend on it. It is more important to understand how various groups behave.  
  • Sentiment moves higher in the extreme zone.
  • Momo crowd buying becomes even more aggressive.
  • Mom and pop who are normally not active in the stock market jump in.
  • Bears throw in the towel and jump in.
  • Underperforming money managers become aggressive buyers.
  • Smart money takes advantage of the strength and trims positions. 
• “Buy low and sell high” is a simple concept in theory. This is exactly what you need to do to consistently beat the stock market. However, in practice it is not as easy as it sounds for the following reasons:
  • Human emotions of fear and greed.
  • Market mechanics
  • Market controlled by momo crowd
  • Momo gurus
  • Short squeezes
  • Thousands of constantly changing variables from across the globe
• The key is to look at returns, not only in terms of absolute returns, but in terms of risk adjusted returns.
• 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 Jobless Claims came at 218K vs. 218K consensus. This indicates that the jobs picture is staying strong.  Initial Jobless 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. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.

Treasury Auction

Yesterday, we shared with you that the largest ever 10-year Treasury auction was still. Please read the Afternoon Capsule for details. 

Today, there is a $25B 30-year auction. This is not the largest auction. The largest auction was $27B.

Investors are expected to trip over themselves to eagerly lend money to the U.S. government for 30 years at about 4%. This simple fact should be thought provoking among prudent investors about the current state of investor thinking. Would you lend to the U.S. government for 30 years at 4%?  

Bard Becomes Gemini

Alphabet Inc Class C GOOG has changed the name of its large language model to Gemini from Bard. Google is also offering a paid version of Gemini. Google is trying to catch up with ChatGPT from Microsoft Corp MSFT and OpenAI.

For investors wanting to make a fortune in AI, it is important to build a strong background. For example, it is important to understand the challenges facing Google that have become opportunities for Microsoft. 

China

Prices dropped at the fastest rate in China since 2009. Here are the details:

• CPI came at -0.8% year-over-year vs. -0.5% consensus.
• CPI came at 0.3% month-over-month vs. 0.4% consensus.
• PPI came at -2.5% year-over-year vs. -2.6% consensus.

In The Arora Report analysis, paradoxically these bad numbers are likely to instill urgency in President Xi to take measures to run up the stock market.  We shared with you yesterday that China has a new regulator for securities.  

In a surprise move, China has replaced its top stock market regulator. The new regulator is Wu Qing, a respected banker. In The Arora Report analysis, this surprise move is an attempt by President Xi to move the Chinese stock market higher.  

Here was what happened the last two times a new regulator was appointed:

• The Chinese stock market went up 80% in two years, starting in 2019.
• The Chinese stock market went up 40% in two years after 2016.  

Japan

Nikkei 225 in Japan went up 2.1% on talk of the Bank of Japan exiting the negative rate policy. Nikkei 225 closed at 36,863. It has taken over 34 years for Nikkei 225 to come close to its prior high of 38,957 on December 29, 1989. In The Arora Report analysis, prudent investors should look at the 34 year period before assuming bear markets do not last very long.  

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 GOOG, Apple Inc AAPL, and MSFT.

In the early trade, money flows are negative in Meta Platforms Inc META, NVIDIA Corp NVDA, 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

Money is flowing out of the safety of gold and into bitcoin and stocks. 

The momo crowd is selling 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 aggressive buying by whale memes in anticipation of bitcoin whales potentially running bitcoin higher over the week, taking advantage of the low liquidity. Sentiment in bitcoin is very positive.

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.