AI Agents To Replace Humans, Best Market Start For A New President Since 1985, Trump Bans Digital Dollar, Biggest Hike In Japan In 18 Years

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

Replacing Humans With AI Agents

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

Note the following:

• The chart shows that the market is breaking out above the micro resistance zone.
• The trigger for the breakout was Trump's speech for Davos.
• The chart shows that the breakout is tenuous. A stronger breakout would have been more convincing. 
• The chart shows the volume was low indicating a lack of conviction.
• RSI on the chart shows that the market is very overbought.  Overbought markets tend to be vulnerable to a pull back. 
• So far, since the inauguration of a new president, S&P 500 is having its best start since 1985.  In 1985 Ronald Reagan was inaugurated.  When Ronald Reagan was elected, there were a lot of concerns about his conservative and somewhat radical policies.  Historians tell us that Reagan went on to become one of the most successful presidents in US history.  The stock market under Reagan did extremely well, even though it included the 1987 stock market crash.  In the 1987 crash, the stock market lost 20.47% in one day.
• In The Arora Report analysis, the future course of the market will depend on Trump's statements.  This morning there is relief that Trump has changed his stance and is now saying he would rather not impose tariffs on China.  It is not only Trump's statements but also the rumors about what Trump may say that are moving the market.
• Prudent investors should note that at this time when China and other nations are making great strides in developing digital currencies controlled by their central banks, Trump has issued an executive order to ban digital dollar.  Presumably, the objective is to benefit cryptos at the expense of the dollar.
  • Please be extra careful, if you are trading new cryptos.  Since Trump's inauguration there has been a flood of fake cryptos that have achieved very large valuations.  Such cryptos are worth zero.  Manipulators and pumpers are having a heyday. 
• Artificial intelligence is taking another step forward.  OpenAI has introduced Operator.  Operator is an AI agent that has its own browser and can perform web related tasks autonomously.  This is a big step forward to replace a large number of humans doing such tasks at present with AI agents.  AI agents present numerous investing opportunities both from the long side and the short side.

Japan

Bank of Japan (BOJ) has announced the biggest rate hike in 18 years.  You may recall the big drop in the stock market in August of 2024 when the carry trade blew up in anticipation of rate hikes by the Bank of Japan.  This time, at least for the short term, it is all calm due to the Trump effect.

Magnificent Seven Money Flows

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

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

In the early trade, money flows are negative in S&P 500 ETF (SPY) and in 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

Trump has announced a working group to evaluate buying cryptos as a strategic reserve.  Initially, Bitcoin BTC/USD fell on disappointment that Trump did not announce a strategic reserve — to bitcoin bulls, there is nothing to evaluate.  The dip was aggressively bought.

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.