Deploy Cash And Reduce Hedges, Powerful Market Mechanics And Trump Tariffs Control The Stock Market

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

Deploy Cash And Reduce Hedges

This change is primarily triggered by a combination of powerful market mechanics and President Trump’s tariff shift.  Keep in mind that this change may need to be quickly reversed if President Trump changes his mind.

Powerful Market Mechanics

Please click here for an enlarged chart of Apple Inc (AAPL).

Note the following:

• Powerful market mechanics and the Trump tariff shift are in control of the stock market.
• This article is about the big picture, not an individual stock.  The chart of AAPL is being used to illustrate the point.
• The chart shows a large move in AAPL stock in the closing minutes of the regular market session on Friday.  The move up was due to large market on close orders.  Large market on close orders, in turn, appear to be related to option expiration.  Both market on close orders and option expiration are important market mechanics.
• This week, two powerful market mechanics are in control:
  • Portfolio rebalancing
  • Window dressing
• In The Arora Report analysis, quarter end rebalancing will bring in billions of dollars to buy stocks.  In quarter end rebalancing, many money managers adjust the balance between stocks and bonds.
• In our analysis, window dressing will also exert buying pressure on stocks.  In window dressing, money managers buy winning stocks as well as popular stocks at the end of the quarter to show their clients in quarter end reports that they were holding winning and popular stocks.
• Next week, blind money will pour into the stock market.  Blind money flows tend to be especially strong at the beginning of a quarter.  Blind money is the money that flows into the stock market without any analysis and irrespective of market conditions.
• Deeply understanding market mechanics gives investors a big edge.  Wall Street professionals keep important nuances close to the chest due to the very high value. 
• President Trump has declared April 2 as Liberation Day.  Trump appears to have shifted his strategy for Liberation Day.  It now appears that Trump will not announce industry specific tariffs on April 2 – this is different from previous expectations.  Most important are cars and chips – they may not see tariffs on April 2.  Reciprocal tariffs are expected to be announced on April 2.
• As a heads up, in our analysis, the U.S. systems for customs and the systems of private shippers are not ready to properly handle all of the complexities of new tariffs.  Paradoxically, when the stock market discovers this, it may lead to more buying as investors will like the delays in tariff implementation.  
• If the buying continues, those following traditional technical analysis will get a buy signal and jump in.
• In spite of the foregoing positives, the stock market is still overvalued and there are significant risks in the short term related to the current administration's policies.
• Further, after the first two days of April, some selling may come in as many investors will sell stocks to raise cash to pay taxes.

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), NVIDIA Corp (NVDA), Tesla Inc (TSLA), and AAPL.

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 along with tech stocks.

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 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.