Nice Profits On Tactical Positions – Santa Claus Rally In Full Swing But Sentiment Extremely Positive

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

Nice Profits On Tactical Positions

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

Note the following:

• The chart shows the market is in the resistance zone.
• RSI on the chart shows that the market is neither overbought nor oversold.
• The chart shows the Santa Claus rally is in full swing.
• Sentiment is extremely positive. Prudent investors should take note, this is a contrary indicator. We previously wrote:

As we have been sharing with you, at extremely positive, sentiment is a contrary indicator. In plain English, sentiment at extremely positive is a sell signal. Here are the key points:

• No one should act based only on sentiment.

• Sentiment is an important indicator but only one of the many indicators that go into a comprehensive 360 degree analysis.

• Sentiment is not a precise timing indicator.

• If the stock market pulls back, sentiment may also pull back, and thus negate any negative implications.

•  Market mechanics continue to be on the positive side.

• When the calendar changes to the new year, the stock market can abruptly change.  We previously shared with you:

In The Arora Report analysis, the start of the new year will likely be the same as every other new year after a strong year for the stock market — if the stock market starts going down, everyone will jump on the selling bandwagon; if the stock market starts going up, everyone will buy.

• There are nice profits on tactical positions. It is prudent before the year end to take partial profits on tactical positions or raise hedges or a combination of the two.  
• Consider continuing to hold strategic positions.  
• Be ready to take more profits and raise hedges depending upon how the stock market behaves in the new year. 
• As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the protection band.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Tesla Inc TSLA, NVIDIA Corp NVDA, and Meta Platforms Inc META.

In the early trade, money flows are neutral in Microsoft Corp MSFT, Alphabet Inc Class C GOOG, and Apple Inc AAPL.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN.

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

The momo crowd is buying stocks in the early trade. Smart money is 🔒 in the early trade. To see the locked content, please click here to start a free trial.

Gold

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

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

The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV.

Oil

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

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is range bound.

Markets

Our very, very short-term early stock market indicator is 🔒. 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 🔒 in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. 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 seven 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.

This article is from an external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.