Better-Than-Feared PCE Brings Buying Into Stock Market, Trump's Stroke Of Genius

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

PCE Brings Buying

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 the stock market took a leg down yesterday on news of the potential additional tariffs.  The news triggered an adjustment to The Arora Report’s protection band on the potential scenario of a worsening relationship between the U.S. and China.  Moreover, the adaptive The Arora Report’s ZYX Asset Allocation Model with inputs in ten categories triggered a more defensive position after the release of jobless claims yesterday.  Please see the section below for the updated protection band.
• The chart shows the volume was not high during the selloff, indicating a lack of conviction among market participants.
• The chart shows the stock market has fallen back to the previous breakout line as of this writing.
• RSI on the chart shows the stock market is oversold.  Oversold markets are susceptible to a bounce.
• President Trump is meeting with Ukraine's President Zelenskyy today, apparently to sign a mineral deal.  The U.S. is very dependent on China for rare earth minerals.  This gives China a strategic advantage.  China can conceivably stop shipping rare earth minerals to the U.S. and cause significant problems in the U.S. economy, including defense.  Ukraine has rare earth mineral reserves.  If the deal is properly structured, it could prove to be a stroke of genius on Trump's part to reduce dependence on China.  The only U.S. based publicly traded rare earth mineral company is MP Materials Corp (MP).  As full disclosure, MP is in The Arora Report’s ZYX Buy portfolio that surrounds the Core Model Portfolio.
• In The Arora Report analysis, the long lasting impact of tariffs is not yet priced in the stock market.  The stock market continues to believe that tariffs are a negotiating tactic and will not be enforced.  In The Arora Report analysis, listening to the latest response from China, there is a fair probability that tariffs on Chinese goods may last for a long time and may be enforced.  Prudent investors should not totally dismiss this scenario, like the stock market is doing.  
• PCE is the Fed's favorite inflation gauge.   Based on yesterday's GDP data, the market feared today's PCE data would come worse than the consensus.  However, the just released PCE came inline with consensus.  This is bringing relief buying into the stock market.   Here are the details:
  • Headline PCE came at 0.3% vs. 0.3% consensus.
  • Core PCE came at 0.3% vs. 0.3% consensus.
• The U.S. economy is 70% consumer based.  For this reason, prudent investors pay attention to personal income and personal spending.  The data shows the consumer is finally pulling back.  Here are the details:
  • Personal spending came at -0.2% vs. 0.2% consensus.
  • Personal income came at 0.9% vs. 0.3% consensus.
• Looking ahead, blind money will come into the stock market on Monday and Tuesday.  Blind money is the money that flows into the stock market on the first two days of the month without any analysis or regard for market conditions.
• Today is Friday.  There are two opposing forces at play.
  • The stock market often moves to the upside on Fridays due to short squeezes.
  • There is a downside on the fear that the stock market may open lower on Monday.

Magnificent Seven Money Flows

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

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

In the early trade, money flows are neutral 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 is seeing selling.  The selling was triggered yesterday on the perception that whales in Asia were taking more profits.  Bitcoin fell below $80,000 before bouncing.

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.