Small Caps Breakout, 85% Probability Of A Rate Cut In September

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

Small Caps Breakout

Please click here for an enlarged chart of iShares Russell 2000 ETF IWM.

Note the following:

•  The chart shows that small caps have broken out.
• The trigger for the breakout is the anticipation of rate cuts.
• The chart shows the breakout is on higher volume. This indicates conviction.
• RSI on the chart shows that in the short term small caps are overbought. The pattern shows that a pullback will likely be a buying opportunity.
• The chart shows the 2021 high in small caps. This level will be a magnet for traders.
• As full disclosure, Small cap ETF IWM is in The Arora Report's ZYX Allocation Model Portfolio.
• In The Arora Report analysis, now there is 85% probability of a rate cut in September. There is a 35% probability of a rate cut in July.
• Investors should keep in mind two important points about Trump’s VP pick JD Vance.
  • He is apparently a crypto bull.
  • He is a China hawk.  He said that China is the “biggest threat.”
• Trump’s pick of JD Vance could mean rollback of climate regulations, more steps against China, and crypto friendly regulations.
• Among notable earnings, Morgan Stanley MS and Bank of America Corp BAC. MS reported better than consensus but worse than whisper numbers. BAC reported better than consensus and whisper numbers.  As full disclosure, BAC is in The Arora Report's ZYX Buy Model Portfolio.

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, and Tesla Inc TSLA.

In the early trade, money flows are neutral in NVIDIA Corp NVDA and Microsoft Corp MSFT.

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil. The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV. The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

After aggressive buying over the weekend and yesterday, Bitcoin BTC/USD is range bound. Bitcoin bulls now have a consensus of bitcoin reaching $100,000 in short time after Trump picked Vance as his VP.

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 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 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.