Selling On Threat To Powell - Dollar, Stocks, And Bonds Fall; Gold And Yen Rise

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

Fed Independence

Please click here for an enlarged chart of the dollar index (DXY).

Note the following:

• The chart also shows gold ETF SPDR Gold Trust (GLD), Japanese currency yen ETF Invesco CurrencyShares Japanese Yen Trust (FXY), SPDR S&P 500 ETF Trust (SPY), and 20+ year Treasury bond ETF (TLT).
• The chart shows that the dollar is falling.
• The falling dollar is leading foreigners to sell bonds.  The chart shows bond ETF TLT is falling.
• Falling bonds are leading to a selloff in stocks in the early trade.  The chart shows S&P 500 ETF SPY is falling.
• Investors are rushing to buy gold.  The chart shows gold ETF GLD is rising.
• The chart shows the Japanese yen is rising as many investors see yen as a safe haven.
• As full disclosure, gold ETF GLD and Japanese yen ETF FXY are in our ZYX Allocation Model Portfolios.
• The foregoing chain reaction was triggered by the Director of the National Economic Council Kevin Hassett saying that President Trump is studying how to fire Fed Chair Powell.
• There is a serious legal question regarding the potential firing of Fed Chair Powell.
• At this time, it is very important for investors to understand how decisions are being made in the White House and how the Supreme Court is making decisions when the administration’s actions are challenged.
• In our analysis, if Powell is fired, this is how the markets will likely react:
  • The dollar may go lower.
  • Bonds may go lower.
  • Gold may go higher.
  • Japanese yen may go higher.
  • It is unclear how stocks would react.  The reaction in the stock market will come down to who wins the battle:
    • Foreigners and smart money will likely be the sellers.
    • The momo crowd will likely be buying.
• On the positive side, President Trump is working on several trade deals.  In our analysis, the announcement of trade deals can potentially bring significant buying into the stock market. Prudent investors should pay attention to President Trump's pain point. On April 10, we shared with you: “In our analysis, the foregoing played a role, but the real reason for the tariff reversal was likely the rise in bond yields.”

In our analysis, yesterday bond yields were getting close to triggering a full blown financial crisis.

• In our analysis, the pause in reciprocal tariffs exposed President Trump's pain point.  
• In our analysis, prudent investors need to keep an eye on President Trump's pain point – the pain point is long bond yields spiraling towards 5%.  
• There is a high probability that President Trump will act before the pain point is reached.
• If President Trump decides to act, trade deals may cushion a potential drop in the stock market if Powell is fired.
• In our analysis, prudent investors should keep in mind there is a wide range of possible outcomes.  These outcomes range from a rip roaring rally to the stock market breaking below recent lows shown on the fourth pane on the chart.  
• Due to the popularity of Tesla Inc (TSLA) with retail investors, moves in TSLA stock impact stock market sentiment.  TSLA stock is adding to the negative sentiment in the early trade on a report that TSLA may delay a new affordable Model Y for the U.S.
• Adding to the negative sentiment this morning is a report that Huawei is getting ready to mass ship an AI chip to compete with NVIDIA Corp (NVDA).  China is depending on Huawei to counter U.S. sanctions on Nvidia chips to China.
• Data on leading indicators will be released at 10am ET and may be market moving. The consensus is -0.4%.
• As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents.  
• Any buying at this time should be considered tactical and not strategic.  Consider using moderation for any buying.  

Magnificent Seven Money Flows

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

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

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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.

Arora Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  Our proprietary 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.