China Retaliates With Tariffs On U.S., Oil Drops On Growth Concerns, Palantir Helps Sentiment

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

Retaliatory Tariffs

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:

• The chart shows that the stock market opened significantly lower yesterday on Trump imposing tariffs on Canada and Mexico.   
• The chart shows that the stock market rallied after Trump delayed tariffs on Canada and Mexico for one month.  
• Sentiment in the stock market had dropped in the morning to bearish from extremely positive most of the last week.  However, sentiment quickly reverted back to extremely positive after Trump delayed tariffs. 
• The chart shows that the rally this morning is being stalled on China imposing retaliatory tariffs on the U.S.
• China is retaliating by imposing tariffs on American goods.  Here are the immediate results of Chinese tariffs:
  • Oil is falling on concerns about global growth.
  • Stocks in Asia gave up some of their gains.
  • Speculative sentiment is pulling back, at least temporarily.    
• Among other notable actions, China is opening an anti-monopoly investigation against Alphabet Inc Class C (GOOG).  China is also declaring apparel company PVH Corp (PVH) and gene sequencing company Illumina Inc (ILMN) as unreliable entities.  Prudent investors should note that China blocked Google search in 2010.  Gmail and YouTube are also blocked in China.  However, the Android operating system is widely used in China.  In The Arora Report analysis, here is the question prudent investors need to ask themselves: Why did China retaliate against Google, which does not do much business in China, and small companies like PVH and ILMN instead of going after highly visible American companies that do a lot of business in China such as Apple Inc (AAPL) and Tesla Inc (TSLA)?  In The Arora Report analysis, the reason is that China is showing restraint and wants to de-escalate.  At least for the time being, this is positive for the stock market.
• Right now the consensus is that Trump will back off from China tariffs just like he did with Canada and Mexico.  However, prudent investors should keep in mind that unlike Mexico and Canada, China has ambitions to replace the U.S. as the major superpower.  As such, events can quickly and unexpectedly take a big negative turn causing stock prices, oil prices, and global growth to fall.  As full disclosure, The Arora Report has a short position in oil.  For members of The Arora Report, this scenario is already taken into account in The Arora Report’s protection band.   
• There are always crosscurrents.  On the positive side, sentiment in AI software stocks is moving up due to the move up in Palantir Technologies Inc (PLTR) stock.  As full disclosure, PLTR is in The Arora Report’s ZYX Buy Core Model Portfolio.  There will be a new post on the core PLTR position with a new buy zone and new target zone.  As full disclosure, there is also a signal for a trade around position in PLTR.  A trade around position is a technique used by billionaires and hedge funds to increase returns and reduce risks.  Investors need to look ahead.  PLTR is likely to experience a windfall from Elon Musk's DOGE.  
• JOLTS job openings were reported at 10am ET.

Magnificent Seven Money Flows

In the early trade, money flows are positive in GOOG, TSLA, Amazon.com, Inc. (AMZN), Alphabet Inc Class C (GOOG), and Meta Platforms Inc (META).

In the early trade, money flows are neutral in NVIDIA Corp (NVDA).

In the early trade, money flows are negative in AAPL.

In the early trade, money flows are negative in S&P 500 ETF (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

Bitcoin BTC/USD is range bound. 

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  The proprietary protection band from The Arora Report is very popular.  The protection band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors. 

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.