Fear Evaporates In The Stock Market As Greed Takes Over, Arora Analysis On Tesla Strikes A Chord

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

Fear Evaporates

Please click here for a chart of SPDR S&P 500 ETF Trust SPY which represents the benchmark stock market index S&P 500.

Note the following:

• The stock market is driven by the emotions of fear and greed.
• Fear has evaporated and greed has taken over.
• The chart shows an extraordinary event yesterday in the stock market.
  • Wall Street’s fear gauge VIX typically goes up when the stock market falls, especially when popular stocks are hit.
  • The chart shows that yesterday VIX went down as S&P 500 ETF SPY and Invesco QQQ Trust Series 1 QQQ went down.
• The chart shows that Tesla Inc. TSLA fell yesterday.  Retail investors have been  more aggressively buying TSLA than any other stock.
• In yesterday’s Morning Capsule titled “MORNING CAPSULE: TESLA MOVE ON RIVIAN NEWS SHOWS THE REALITY OF INVESTORS, POWELL TESTIMONY, INDIA ASCENDANT,” we shared with you the nonsensical move in TSLA stock on Rivian Automotive Inc. RIVN news with TSLA stock adding $50B in market cap for potential profits of less than $50M on top of $240B in market cap investors added on Ford Motor Co. F and General Motors Co. GM news prior to Rivian news.
  • In the premarket yesterday, TSLA was trading at almost $280.  It is trading at about $250 as of this writing, a $30 drop from yesterday’s premarket high.
• The chart shows when an Arora signal was given to short sell TSLA stock for a very, very short term trade.  The signal has turned out to be nicely profitable.
• Just like retail investors have been pouring money into TSLA stock, institutional investors have been pouring money into NVIDIA Corp. NVDA stock.
  • The chart shows that NVDA stock also fell yesterday.
• The chart shows Arora signal to take profits in the NVDA trade around position prior to the drop in the stock.
• We have previously shared that semiconductors are the leading sector and prudent investors should closely watch VanEck Semiconductor ETF SMH.
• The chart shows that semiconductors also fell yesterday.  Especially hard hit was retail investors’ favorite semiconductor stock Advanced Micro Devices Inc. AMD.
• Why did Wall Street’s fear gauge VIX drop when SPY, QQQ, SMH, TSLA, and NVDA also dropped?  The reason is twofold:
  • First, the momo crowd believes that there is no longer a need for protection as fear has totally evaporated.
  • Second, it has to do with Wall Street mechanics.  Investors can gain a significant edge by understanding Wall Street mechanics.  Many of Wall Street mechanics are closely guarded secrets because of the high value.  This makes it difficult for most investors to learn them.  The Arora Report has revealed these secrets in a series of podcasts.  These podcasts are available in Arora Ambassador Club.

Jobless Claims

Initial claims came at 264K vs. 259K consensus.  This is a leading indicator, and as such, carries heavy weight in the adaptive ZYX Asset Allocation Model with inputs in ten categories.  In plain English, adaptiveness means that the model changes automatically with market conditions.  The adaptiveness is partly behind the success of The Arora Report.  Most models on Wall Street are static.  They work for a while and then they stop working when conditions change.  Click here to see how adaptiveness is achieved.

Powell

Powell will give a second day of testimony.  Q&A may move the markets.

U.K.

Bank of England has raised its key interest rate 50 basis points to 5.0% vs. a consensus of a rise of 25 basis points to 4.75%.  You had an advanced notice, we wrote in yesterday’s Morning Capsule:

The data may force Bank of England’s hand to raise interest rates again.

Norway

Norges Bank, Norway’s central bank, has raised its interest rate by 50 basis points.  Norges Bank has also indicated that more rate hikes may be coming.

Switzerland

Swiss National Bank has raised its key interest rates by 25 basis points to 1.75%.  Swiss National Bank is indicating that more rate hikes may be coming.

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade.  Smart money is inactive in the early trade.

Gold

The momo crowd is selling gold in the early trade.  Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is buying oil in the early trade.  Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Previously it was BlackRock Inc. BLK, now Wisdomtree Inc. WT has also filed for a bitcoin ETF.  The news has moved bitcoin BTC/USD above $30,000.

Markets

Our very, very short-term early stock market indicator is negative.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

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 holding 21% - 39% in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 3% - 6%, and short term hedges of 5% - 8%. 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.

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 2008 financial crash, the start of a mega bull market in 2009, the COVID crash, the post-COVID bull market, and the 2022 bear market.  Please click here to sign up for a free forever Generate Wealth Newsletter.