No 'Back Up The Truck And Buy Stocks' Signal – CTAs' Positioned To Sell The Rallies

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

Carry Trade Unwind Not Over

Please click here for an enlarged chart of Nasdaq 100 ETF QQQ.

Note the following:

• The chart shows that QQQ gapped down and opened yesterday below the support/resistance zone.
• The chart shows the dip was bought.
• The chart shows QQQ is now in the support/resistance zone.
• The chart shows that drop yesterday occurred on higher volume.  This indicates conviction in selling.
• The chart shows there is buying this morning.
• There are ten different indications that combine together to show a capitulation. In The Arora Report analysis, nothing even close to a capitulation has happened.  
• When a capitulation happens, it often leads to a ‘back up the truck and buy stocks' signal. There is no such signal at this time.
• The carry trade unwind was the primary cause of the sell off yesterday.
• There is a widespread mistaken belief among less informed investors that the carry trade unwind is over.
• In The Arora Report analysis, only those funds that were overstretched were forced to unwind yesterday.
• In The Arora Report analysis, those with deeper pockets will take advantage of rallies to unwind the carry trade.
• The buy the dip mentality is well and alive. It is on display in Japan, where stocks jumped about 10% overnight.
• Commodity Trading Advisors (CTAs) manage about $300B. These advisors primarily trade futures in a systematic manner.  In The Arora Report analysis, CTAs were caught by surprise over the last three days. Positioning of CTAs is such that they are likely to sell the rallies.     
• On the positive side, momo gurus have a new narrative. Their narrative is that the Fed will cut at least by 50 bps three times this year. The momo gurus are also demanding that the Fed cut interest rates by 75 bps in an emergency meeting.  This narrative seems to be working. The momo crowd is back to aggressively buying stocks.
• In The Arora Report analysis, without further turbulence, there is almost zero probability of an emergency Fed meeting and an immediate 75 bps cut. However, if the Fed were to cut by 75 bps, there would likely be a rip roaring stock market rally, leading to new highs.  
• The buying the dip mentality was so strong yesterday that Wall Street's fear gauge VIX (VIX) saw the biggest intraday drop ever in history.  VIX dropped from the intraday high of 65 to close at 38. This indicates that fear evaporated among the momo crowd very quickly.  

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, and Tesla Inc TSLA.

In the early trade, money flows are negative in Apple Inc 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 BTC/USD is being bought as bitcoin whales are promoting the idea that support at $50,000 held and now is the time to buy.

Protection Band And What To Do Now

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

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.