Powell Jackson Hole Hopium Is At Hand, Nvidia Hopium Is Ahead, Carry Trade Risk

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

Hopium

Please click here for an enlarged chart of S&P 500 ETF SPY which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The chart shows that after tracing a V bottom on the carry trade unwind, the stock market is in the resistance zone.
• The RSI pattern shown on the chart is such that the stock market can go either way.
• Bulls are hopeful that Powell's speech at Jackson Hole today will trigger a breakout in the stock market to a new high.
• The consensus on Wall Street is that if the stock market does not break out above the resistance zone shown on the chart on Powell's speech, the stock market will break out on NVIDIA Corp NVDA earnings.
• Nvidia earnings will be released on August 28 after the close.  Whisper numbers continue to ratchet up as analysts compete to generate business.
• The best way for prudent investors to think about the market now is that almost everyone is on one side of the boat.  The boat will continue to cruise just fine as long as there is no turbulence.  However, the slightest turbulence can cause trouble because almost everyone is on the same side.  
• The chart shows when the stock market recently fell on the unwind of the carry trade.  The unwind was due to the Bank of Japan (BOJ) raising its interest rates and consequently strengthening the yen.
  • A big part of the reason behind the market's rally is a statement from the BOJ saying it would not raise rates as long as the market is unstable.
  • After the statement from the BOJ, funds are back establishing new carry trades.
• Prudent investors should note that Bank of Japan governor Kazuo Ueda has now stated, "If we are able to confirm a rising certainty that the economy and prices will stay in line with forecasts, there's no change to our stance that we'll continue to adjust the degree of easing." In plain English, this means the BOJ is likely to raise interest rates again.  Such a raise may cause the carry trade to unwind again.  

Magnificent Seven Money Flows

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

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust 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 range bound.

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.