To gain an edge, this is what you need to know today.
10 Year In Focus
Please click here for an enlarged chart of iShares 20+ Year Treasury Bond ETF TLT.
Note the following:
- The chart shows TLT had previously touched the top band of the support zone.
- The chart shows yesterday TLT broke out above the top band of the support zone. TLT took a leg up for two main reasons:
- Treasury Secretary Scott Bessent said that Trump wants to focus on the 10-year yield to reduce borrowing costs instead of the Fed's short term benchmark.
- The details of the Treasury funding. Yesterday, we wrote:
In an important development, the Treasury announced $125B of securities, from 3 year to 30 year, to refund approximately $106B Treasuries maturing on February 15. So far, the stock market likes this development, and there is aggressive buying on this news.
- Rallying bonds means lower yields. Rallying bonds are also a positive for the stock market.
- Initial jobless claims came at 219K vs. 213K consensus. This data adds to the murky jobs picture. The official jobs report will be released tomorrow at 8:30am ET. The official jobs report may bring clarity to the murky jobs picture and the data may be market moving.
- Arm Holdings American Depositary Shares ARM is a British company. Its processor design is used in over 90% of smartphones, including iPhones. In The Arora Report analysis, ARM stock is one of the bigger beneficiaries of the future AI move to the edge. Arm is guiding $0.48 – $0.56 vs. $0.52 consensus, but whisper numbers have been much higher. ARM stock is falling on guidance below whisper numbers. In The Arora Report analysis, Arm guidance is raising a concern that the growth of AI to the edge may be slower than the market currently expects. However, Wall Street firms are coming to Arm's defense and raising targets on ARM stock.
- Qualcomm Inc QCOM earnings and guidance are better than the consensus and whisper numbers. However, the stock is under pressure on slowing smartphone growth. As full disclosure, QCOM is in The Arora Report’s ZYX Buy Core Model Portfolio. As the stock market is focused on slowing smartphone growth, in The Arora Report analysis, investors should look forward as Qualcomm will be a major beneficiary of AI's move to the edge.
- The reaction to earnings from Arm and Qualcomm demonstrates crosscurrents. As a reader of The Arora Report, you have an advantage as The Arora Report is one of the rare resources that has a long track record of helping investors successfully navigate crosscurrents.
- Dependence on Apple Inc AAPL has its perils. Skyworks Solutions Inc SWKS has been a main supplier of RF components to Apple. SWKS stock is falling 28% on the news that Apple is going to shift some of its business to another vendor. In The Arora Report analysis, the other vendor is likely Broadcom Inc AVGO. As full disclosure, there is a sympathy short trade on this news in Qorvo Inc QRVO. It is too late to short SWKS.
- Several food stocks have been under pressure, especially hard hit have been those impacted by rising prices of cocoa. This morning, sentiment is lifting on these stocks as chocolate maker Hershey Co HSY beat earnings.
- Eli Lilly And Co LLY has been the best performing pharmaceutical stock due to the popularity of its weight loss drugs. LLY beat the consensus and whisper numbers and provided a very positive update on the pipeline. In the early trade, LLY stock is volatile in the premarket, having traded at low as $812.18 and as high as $875. Prudent investors need to note that the wide range in a very short time seen in LLY stock this morning is becoming typical in many many stocks. As a practical tip, in this market it is imperative to scale in and scale out. As full disclosure, LLY is in the ZYX Buy Core Model Portfolio.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon.com, Inc. AMZN, Meta Platforms Inc META, and NVIDIA Corp NVDA.
In the early trade, money flows are neutral in Microsoft Corp MSFT.
In the early trade, money flows are negative in AAPL, Alphabet Inc Class C GOOG, and Tesla Inc TSLA.
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
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.
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