Trump's Crypto Surprise Move Brings Buyers Into Stock Market - Skeptics Abound - Anathema To Free Enterprise

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

Strategic Crypto Reserve

Please click here for a chart of iShares Bitcoin Trust ETF (IBIT).  We are using the chart of IBIT instead of bitcoin based on member requests.

Note the following:

• The chart shows IBIT had dipped into the Arora buy zone.  As full disclosure, IBIT is in The Arora Report's Model Portfolios.
• The chart shows a big jump in IBIT correlated to a big move in bitcoin after President Trump announced a strategic crypto reserve.  There were two surprises in Trump's announcement:
  • It was expected that a crypto reserve would include only bitcoin.  Trump announced the reserve would include not only Bitcoin (BTC), but also Ether (ETH), Solana (SOL), XRP (XRP), and Cardano (ADA).
  • Trump was expected to make an announcement this coming Friday at a crypto conference.  Instead, Trump announced the reserve yesterday afternoon.  Eric Trump tweeted, "I love the genius of announcing a strategic reserve on a Sunday, when traditional markets are closed and Wall Street sleeps. For the first time, retail investors win. Traditional finance better catch up, or it will quickly become extinct. The world no longer runs on a Mon-Friday, 9 to 5."
• The chart provides food for thought for prudent investors.  Expectations were that, on Trump's announcement, IBIT would move higher, cutting through the micro resistance zone shown on the chart like a hot knife through butter, and subsequently, bitcoin would break above the previous high to reach around $120,000 in a matter of hours.
• The chart shows that IBIT did not even reach the micro resistance zone.  Why would IBIT not reach the micro resistance zone on aggressive buying on Trump's announcement?  The answer is bitcoin whales were taking advantage of the strength and selling bitcoin.
• The fact that the chart shows IBIT did not even reach the micro resistance zone shows that, at least for the time being, there is a lot of skepticism about Trump’s plan.
• Skepticism is coming from two corners.
  • Many of the most astute bitcoin bulls do not like the inclusion of smaller tokens in the strategic crypto reserve due to volatility, liquidity, complexity, short histories, and much higher risks than bitcoin.  On the other side, expect Trump supporters to argue that including smaller tokens provides diversification and will help the U.S. gain technological leadership.
  • Skepticism is also coming from those who understand that free enterprise, and not the government, is the driving force that has made America the greatest country in the world.  Under the Biden administration, there was substantial misallocation of resources as Biden picked winners and losers based on his preferences and political considerations.  Now, President Trump, and not the free market, is picking winners and losers in cryptos.  The government always misallocates resources.  If government allocation of resources worked, today, Russia would also be one of the greatest countries in the world.
• Prudent investors need to be very concerned for the long term as to the psychological impact of the strategic crypto reserve on the dollar.  The U.S. owes a big part of its prosperity to the dollar being the world's reserve currency. From our resources across the globe, the formation of the strategy crypto reserve is prompting other countries to accelerate their efforts to diversify away from the dollar.
• On the other side, crypto bulls make a feeble argument that as the U.S. government buying artificially drives cryptos higher, the strategic crypto reserve will boost confidence in the dollar.
• The announcement of the strategic crypto reserve has boosted the sentiment in the stock market to extreme positive again.  This is bringing in aggressive buying, especially in speculative stocks.  
• An extraordinary event occurred in the last 20 minutes of trading on Friday.  There were huge closing imbalances on the buy side.  Billions of dollars of stocks were bought in the last 20 minutes of the regular session.  The buy side imbalances occurred due to month end rebalancing.
• This morning, Wall Street is also front running blind money. The typical mode of business is for Wall Street to buy stocks earlier in hope of selling to blind money at higher prices later.  Blind money is typically invested in the afternoon.  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.
• In The Arora Report analysis, the probability of a correction in the stock market had significantly increased after last week's events, but after Trump's crypto announcement, the probability of a correction is declining again.  
• Crypto related stocks such as MicroStrategy Inc (MSTR), Coinbase Global Inc (COIN), and Robinhood Markets Inc (HOOD) are being aggressively bought in the early trade.
• ISM Manufacturing Index was released at 10am ET.

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), Microsoft Corp (MSFT), and Tesla Inc (TSLA).

In the early trade, money flows are neutral in Apple Inc (AAPL).

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

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

Bitcoin is seeing buying on Trump's announcement.

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.