Stock Market's New Year Mantra - Trump, Bitcoin, AI, And Quantum Will Fix Everything

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

New Year Mantra

An enlarged chart of SPDR S&P 500 ETF Trust which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• On the first day of trading in 2025, the chart shows that the stock market has pulled back close to the breakout line.
• The chart shows the micro resistance zone and the support zone.
• RSI on the chart shows that the stock market is neither overbought nor oversold.  It is poised to go either way.
• Wall Street machines are ready to jump on whichever direction the stock market starts moving.
• In the early trade, the momo crowd and meme crowd are buying extremely aggressively.
• At the start of 2025, the sentiment is extremely positive.  The Arora Report has been sharing with readers, extreme positive sentiment is a contrary signal.  In plain English, it means sell.  Keep in mind, sentiment is not a precise timing indicator.  Further, sentiment is only one of many indicators.  Prudent investors should follow a 360 degree analysis from a proven system such as the adaptive ZYX Allocation Model with inputs in ten categories.
• The last time sentiment was this positive at the start of a new year was in 2000. In 2000, after five years of internet frenzy, the market crashed.  Those who were primarily invested in speculative stocks lost 90% – 95% of the value of their portfolios.
• As the market enters 2025, the AI frenzy has been going for only two years versus five years of internet frenzy before the market crashed in 2000.
• With extreme hopium, here is the mantra the stock market is following for 2025:
  • Trump will fix everything.  At The Arora Report, we would like nothing more than to see Trump succeed.  However, the market may face a rude awakening when hopium meets reality.
  • As a Magic 8 Ball solution, the market believes bitcoin is the solution to budget deficits, $36T of national debt, and maintaining the dollar as the world's reserve currency.  Trump is apparently planning a one million bitcoin U.S. strategic reserve.  The biggest U.S. based bitcoin whale is advocating for a six to seven million bitcoin reserve.  In The Arora Report analysis, while it is not impossible for bitcoin to fix these issues, the probability of it working out the way bitcoin bulls are promoting is low. 
  • The stock market is believing that the AI frenzy will continue for a third year, taking the stock market to new highs.  In The Arora Report analysis, AI will become smarter and more pervasive in 2025, leading to large productivity gains.  However, AI will also be disruptive.  Even though the stock market thinks there will only be winners from AI, the reality is there will also be many losers.  Further in The Arora Report analysis, money will flow out of some of the present day AI favorites to more software companies and other companies that are users of AI.
  • Quantum computing is the latest buzz word that is spreading like wildfire.  In The Arora Report analysis, quantum computing has the potential to be bigger than the internet and AI.  The emphasis here is on the word "potential."   Further in The Arora Report analysis, know-nothing pumpers are in fantasy land regarding quantum computing.  Although there are significant advances in the science, reality is nowhere near the fantasy that is spreading like wildfire.  Expect many in the momo crowd to become bag holders.
• The stock market is hoping that the Fed will continue to cut rates under pressure from Trump even when the data may not support rate cuts.  In The Arora Report analysis, in 2018 in the face of opposition from Trump, Powell did not have the spine to continue with rate cuts and he reversed.  Market hopium regarding the Fed may work, unless inflation heats up.  In The Arora Report analysis, there is better than 50% probability of inflation heating up depending upon how Trump executes his policies.
• Initial jobless claims came at 211K vs. 224K consensus.  This indicates that the jobs picture remains strong, especially at the low end.  If the data continues this strong, the Fed will have difficulty cutting rates further.
• As of this writing, some of the extreme optimism from early this morning is dissipating on the data that Tesla Inc deliveries came at 495K vs. 504K consensus.   TSLA stock has been a major gainer after Trump’s re-election.  As full disclosure, TSLA is in The Arora Report’s ZYX Buy Core Model Portfolio.

Europe

After 57 years, Russian gas has stopped flowing to Europe through Ukraine.  Natural gas prices are rising.  Two beneficiaries of rising natural gas prices in The Arora Report’s ZYX Buy Core Model Portfolio are Shell PLC SHEL and EOG Resources Inc EOG.  Other stocks benefiting from rising natural gas prices are Expand Energy Corp EXE, EQT Corp EQT, and Range Resources Corp RRC – as full disclosure, these stocks are in the portfolio that surrounds The Arora Report’s Model Portfolio in ZYX Buy.  As full disclosure, natural gas stock Devon Energy Corp DVN is in the January Effect list.

China

Chinese stocks have started the new year on a sour note on concerns about Trump tariffs.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc., Alphabet Inc Class C , Meta Platforms Inc, Microsoft Corp, NVIDIA Corp, and TSLA.

In the early trade, money flows are negative in Apple Inc .

In the early trade, money flows are positive in S&P 500 ETF (SPY) 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.  The most popular ETF for silver is iShares Silver Trust.  The most popular ETF for oil is United States Oil ETF.

Bitcoin

Bitcoin is seeing buying.

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.