$2 Trillion Option Expiration – Iran Backchannel Messaging Causes Oil Collapse

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

Iran Backchannels

Please click here for a 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 stock market is consolidating after the big rally.
• RSI on the chart shows that the stock market is overbought in the very short term.
• The magnet now is the mini resistance zone on the chart.
• Financial Times is known for its sources in the Middle East. The headline today of Financial Times is “Iran Told U.S. It Did Not Want Israel-Hamas War To Escalate (Through Backchannels).”
• Investors who want to outperform markets have, for ages, pursued the quest of being able to read tomorrow’s newspaper today. Over the years, there have been hundreds of times when members of The Arora Report knew in advance what subsequently appeared as newspaper headlines. Eight days before the Financial Times headline on November 9, The Arora Report Morning Capsule stated,

The indication from our sources is that Iran is concluding that fighting the U.S. directly will be a losing proposition.

• The foregoing is important because oil collapsed as the fear of Iran opening a second front abated. Falling oil prices reduced inflation. Lower inflation drives bonds higher. Due to the market mechanic of 100:1 leverage, a massive rally was triggered in the stock market.  For those who want to take their investing to the next level, listen to the podcast in Arora Ambassador Club titled “Market Mechanics: 100:1 Bond Leverage Can Trigger Major Stock Market Moves.”
• About $2T notional value of options are expiring today. Here is the key question for investors: “Will these options be rolled over?” The answer to this question is important. If investors choose to roll over these options, it will move the stock market higher. On the other hand, if investors choose not to roll over most of these options, it will put downward pressure on the stock market.
• At The Arora Report, we are keeping close tabs on option expiration. The result of our analysis is incorporated in the Protection Band.
• 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 Amazon.com, Inc. AMZN, Microsoft Corp MSFT, and Apple Inc AAPL.

In the early trade, money flows are negative in Alphabet Inc Class C GOOG, Meta Platforms Inc META, NVIDIA Corp NVDA, and Tesla Inc TSLA.

In the early trade, money flows are mixed 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 buying gold 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

Oil prices have collapsed on Iran not wanting to open a second front.

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.