Direction Of Stock Market Depends Upon Trump's Speech, Musk Throws Cold Water On AI Stargate

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

Trump Key To Market

An enlarged chart of VanEck Semiconductor ETF SMH.

Note the following:

• The chart shows yesterday semiconductor stocks attempted to break above the micro resistance zone on Stargate excitement.
• The chart shows semiconductor stocks have pulled back to the top of the micro resistance zone.
• Musk is throwing cold water on Stargate, claiming Stargate does not have enough money.
• As members of The Arora Report, you knew in advance to be skeptical.  We wrote in yesterday's Morning Capsule:

In The Arora Report analysis, the headline of $500B for Stargate may turn out to be a mirage.  The initial number is $100B and includes previously announced projects.  The new funding may be significantly less than $100B.  For the time being, the analysis does not matter because the momo crowd is buying extremely aggressively on the headline.

• President Trump is speaking today at the Davos World Economic Forum at 11am ET. CEOs, including those of Bank of America Corp BAC and Blackstone Inc BX are expected to ask Trump questions after the speech.
• In The Arora Report analysis, CEOs are busy appeasing Trump.  As a result, we expect CEOs to ask only questions that appease Trump and refrain from asking hard questions.  In The Arora Report analysis, what Trump says will determine if the stock market goes to new highs or pulls back.
• In The Arora Report analysis investors should be aware of another important factor that shows the stock market may be poised for a pullback.  The composite put/call ratio is a contrary indicator, and it is at the lowest level since 2021.  This indicates extreme optimism that often results in a pullback.  Does anyone remember the bear market of 2022.  As always, no one should make decisions based on only one indicator.  Investors should consider making decisions based on a comprehensive 360 degree analysis, such as that achieved by the adaptive ZYX Asset Allocation Model with inputs in 10 categories.
• Initial jobless claims came at 223K vs. 219K consensus. This indicates the jobs picture remains strong.

Japan

The Bank of Japan (BOJ) is meeting today and tomorrow.  In The Arora Report analysis, there is a high probability of a rate increase to 0.5%.  The last time BOJ increased rates the Japanese and U.S. stock markets dropped on the unwinding of carry trades.   BOJ has been careful to publicize the possibility of a rate increase to avoid a dramatic response this time around.

Saudi Arabia

The Crown Prince of Saudi Arabia told Trump that Saudi Arabia plans to invest $600B in the U.S. In The Arora Report analysis, this is an indication of how Trump is succeeding in attracting foreign capital to the U.S.  Further in The Arora Report analysis, attracting foreign capital to the U.S. is a good way to reduce inflation.  

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc and Meta Platforms Inc.

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

In the early trade, money flows are negative in 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.  The most popular ETF for silver is iShares Silver Trust.  The most popular ETF for oil is United States Oil ETF.

Bitcoin

Bitcoin (BTC.USD) is seeing two cross currents.  

• Selling is coming in along with selling in speculative junk stocks. 
• Buying is coming in on optimism from Trump pardoning Ross Ulbricht.  Ulbricht was the founder of Silk Road.  Silk Road facilitated the use of cryptos for criminal activities.  Ulbricht was serving two life sentences.  

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.