Key To The Market Is Biden's Response To Killing Of U.S. Soldiers – Optimism Over Tech Earnings

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

Biden Response

Please see the chart above of Light Sweet Crude Oil futures (CL_F).

Note the following:

• Three U.S. troops were killed in a drone attack in Jordan by Iran backed militias.
• Initially following the attack over the weekend, a strong positive reaction was expected in gold, oil, bonds, and the dollar.  A negative reaction was expected in stocks.
• Biden was under increasing pressure from Republicans to attack Iran.
• The fear was escalation of conflict in the Middle East.
• As the weekend progressed, Republicans accused Biden of being weak.
• Yesterday evening when futures opened, there was only slight buying in oil and slight selling in stocks.
• The chart shows that as of this writing, oil futures have reversed. Oil is most sensitive to developments in the Middle East.  
• In The Arora Report analysis, the probability is high that in spite of strong rhetoric by Biden, Biden’s response to the attack and loss of three soldiers is likely to be weak. In The Arora Report analysis, Biden does not want to get into war with Iran.    
• A weak response from the U.S. will not be largely disruptive to oil and the broader markets, at least in the short term.
• Prudent investors should keep in mind that it is an election year. Despite The Arora Report’s analysis of a low probability, Biden may take a stronger position with November voters in mind. A strong reaction from the U.S. would put downward pressure on the stock market.
• Investors are optimistic going into tech earnings this week:
  • Advanced Micro Devices, Inc. AMD, Alphabet Inc Class C GOOG, and Microsoft Corp MSFT report on Tuesday.
  • Qualcomm Inc QCOM reports on Wednesday.
  • Apple Inc AAPL, Amazon.com, Inc. AMZN, and Meta Platforms Inc META report on Thursday.
• Investors are also awaiting market moving data this week:
  • The FOMC meeting begins Tuesday. The rate decision will be announced Wednesday at 2pm ET followed by Powell’s press conference at 2:30pm ET.
  • The Bank of England’s rate decision will be announced on Thursday.
  • The jobs report, the mother of all numbers, will be released on Friday at 8:30am ET.
• 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.

China

A court in Hong Kong has ordered Evergrande, once the largest real estate developer in China, to be liquidated.  In The Arora Report analysis, this will not have a negative impact on the Chinese stock market.  

Magnificent Seven Money Flows

In the early trade, money flows are positive in NVIDIA Corp NVDA, Microsoft (MSFT),  Meta (META), Amazon (AMZN), and Tesla Inc TSLA.

In the early trade, money flows are neutral in Alphabet (GOOG).

In the early trade, money flows are negative in Apple (AAPL).

In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust SPY 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 inactive in the early trade.

Gold

Gold is seeing buying on Middle East concerns.

The momo crowd is aggressively buying gold in the early trade. Smart money is inactive 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

The momo crowd is like a yoyo in oil in the early trade. Smart money is inactive 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 miners often tend to lead bitcoin BTC/USD. Previously, we shared with you that short sellers were aggressively short selling bitcoin miners when bitcoin ETFs were approved. The signals from bitcoin miners proved accurate as bitcoin lost about 20% of its value. Now, short sellers are taking profits by buying to cover. This is driving bitcoin miners higher and adding to buying in bitcoin.

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 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.

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.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.