Computers In New Tesla Cars Failing But Tesla Stock Rockets On Trump's Support

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

Extreme Positive Sentiment

An enlarged chart of Tesla Inc TSLA.

Note the following:

• This article is about the big picture, not an individual stock.  The chart of TSLA stock is being used to illustrate the point.
• The chart shows that TSLA stock has gone parabolic.
• The chart shows the recent Arora buy signal.  There is a 66.8% gain from the Arora buy signal in less than six weeks.
• RSI on the chart shows that TSLA stock is overbought.  Overbought stocks tend to be susceptible to a pullback.
• Yesterday's TSLA stock was ripping, in part, on rumors that Trump will change the law so that Tesla does not have to report car crashes to regulators.  Regulators use this data to assess the safety of vehicles. To date, Tesla has had to report over 1500 crashes.
• Investors are ignoring the news that the computers in Tesla's new cars are failing.  TSLA stock should have been down on the news of the new car computers failing.  Instead, TSLA stock ran higher.  This is a prime example of what happens when sentiment is at the extreme positive.
• TSLA stock is also moving higher in part because there is a new constituent of buyers for TSLA stock. These buyers are the ones who hate electric vehicles (EVs), are big Trump supporters, and are now buying TSLA stock because they see Tesla CEO Elon Musk with Trump.
• In The Arora Report analysis, sales of EVs are going to fall.  This is a risk to TSLA stock.  However, bullish Tesla analysts already have a narrative – EVs no longer matter to Tesla because Tesla has Trump's support to change laws to benefit Tesla.  In The Arora Report analysis, the future of Tesla is about autonomy, robotaxis, and robots; however, EVs are still very important to Tesla – robotaxis and autonomy are built on EVs.
• Astute investors recognize that extreme positive sentiment is a sell signal.  Profit taking by such investors in the early trade is overwhelming buying by the momo crowd.  As we have written before, extreme positive sentiment is not a precise timing signal.
• Prudent investors closely watch retail sales data as the U.S. economy is 70% consumer based.  The data is mixed; consumers are still aggressively buying cars but are pulling back on other purchases.  Here is the latest retail sales data.
  • Headline retail sales came at 0.7% vs. 0.5% consensus.
  • Retail sales ex-auto came at 0.2% vs. 0.4% consensus.
• FOMC is starting its meeting today.  The rate decision will be announced tomorrow at 2pm ET, followed by Powell's press conference at 2:30pm ET.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Alphabet Inc Class C and Tesla.

In the early trade, money flows are neutral in Meta Platforms Inc.

In the early trade, money flows are negative in Apple Inc, Amazon.com, Inc.,   Microsoft Corp, and NVIDIA Corp.

In the early trade, money flows are negative in SPDR S&P 500 ETF Trust and Invesco QQQ Trust Series 1.

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 continues to move higher as the rumor takes hold that Trump will announce the bitcoin reserve on day one.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  The proprietary protection band from The Arora Report is very popular.  The 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.