Smart Money Trims Stocks On Strong Jobs Report - Raise Hedges, China Stops Buying Gold

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

Strong Jobs Report

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

Note the following:

• Cross currents in the stock market are increasing. Investors may need to handle increasing volatility due to cross currents. The best way to handle increasing volatility is to follow the protection band.
• Hedges are being raised. 
• The chart shows that after hitting the low band of the support zone, the stock market made a new high. This is technically a bullish pattern.
• The chart shows yesterday was the lowest volume day in a long time. This indicates a lack of conviction. RSI on the chart shows that the stock market can go either way.
• The chart shows that the stock market is selling off in the early trade on a stronger than expected jobs report.
• Here are the details of the jobs report:
  • Nonfarm payrolls came at 272K vs. 186K consensus.
  • Nonfarm private payrolls came at 229K vs. 168K consensus.
  • Average hourly earnings came at 0.4% vs. 0.3% consensus.
  • Average work week came at 34.3 hours vs. 34.3 hours consensus.
  • Unemployment rate came at 4.0% vs. 3.9% consensus.
• In The Arora Report analysis, the jobs report, when taken in totality along with the recent weak data from JOLTS and jobless claims, precludes the Fed from cutting rates at this time if the Fed is truly data dependent.  
• Momo gurus have been persuading their followers to buy stocks ahead of the jobs report because they claimed they knew the jobs report would be very weak.  Momo gurus are wrong again.  However, momo gurus have some ammunition for a new narrative to persuade their followers to continue to buy stocks. In The Arora Report analysis, here is the ammunition momo gurus can use:
  • The unemployment rate rose.
  • Household survey data was weaker.
  • Much of the job creation was in government and service industries such as hospitality.
• Smart money is trimming stocks on the strong jobs report. Keep in mind that smart money owns very large stock positions. They just trim into the strength. In contrast, many in the momo crowd tend to be “all in or all out”.  In The Arora Report analysis, over the long term, the momo crowd’s “all in or all out” strategy does not work well.
• China has stopped buying gold. Please see the “Gold” section below.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Meta Platforms Inc META and Microsoft Corp MSFT.

In the early trade, money flows are neutral in Apple Inc AAPL, Amazon.com, Inc. AMZN, and Alphabet Inc Class C GOOG.

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

In the early trade, money flows are negative 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 selling stocks in the early trade.

Note for new investors: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling.  Over a long period of time, investors come out ahead by adopting smart money’s ways.  The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.

Gold

There have been many reasons for the rise in gold, silver, and metal mining stocks.  A big reason has been incessant buying by China's central bank. It appears that last month, China's central bank did not buy gold after massive buying for 18 months.

At this time, it is not known what other central banks that have been buying gold are doing.

The momo crowd is buying gold in the early trade.  Smart money is selling gold 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.

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 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 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.

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