Israel Kills Top Iranian General – Oil Rises – Not Great For Stock Market's No Inflation Story

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

Raise Hedges

It is time to raise hedges.  As full disclosure, a signal was given to The Arora Report members.

Middle East Tensions

Note the following:

• An Israeli air strike on the Iranian consulate in Damascus, Syria killed a top Iranian general.  Iran is vowing revenge.
• The chart shows oil is rising.
• Both trendlines on the chart show a bottoming pattern in oil.
• The upper trendline on the chart shows that oil is threatening to break out.
• Rising oil means higher gasoline prices.
• The general American public tends to measure inflation by gas prices.  Higher gas prices means higher inflation expectations.
• The Fed does not want inflation expectations to rise.  The reason is that as inflation expectations rise, it becomes a self-fulfilling spiral.
• Rising oil works against momo gurus’ narrative that investors should buy stocks as there is nothing to worry about in regards to inflation.  Keep in mind that momo gurus’ real job is to persuade investors to buy stocks under the disguise of analysis.  This is the reason investors should be very careful about what they hear from momo gurus.  Investors should rely on an independent source of analysis where the sole agenda is the well-being of investors.
• ISM Manufacturing Index came at 50.3% vs. 48.5% consensus.  This indicates manufacturing is strengthening.  This strong data reduces the probability of a rate cut in June.
• Yields are rising.  10-year Treasuries are hitting 4.393%.  This is the highest level since November.
• Of special note for prudent investors is that in spite of blind money flooding Wall Street, the stock market is not able to rise.  
• Two pieces of news are impacting the extremely bullish sentiment in a negative way this morning.
  • Tesla Inc TSLA deliveries came at 387K  vs. 457K consensus.
  • The rate increase for Medicare Advantage is less than anticipated.  This is causing selling in CVS Health Corp CVS, Elevance Health Inc ELV, UnitedHealth Group Inc UNH, and Humana Inc HUM.
• 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 negative in Apple Inc AAPL, Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Microsoft Corp MSFT, NVIDIA Corp NVDA, and TSLA.

In the early trade, money flows are negative 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 selling stocks in the early trade.

Gold

The momo crowd is 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 buying 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

Whales are taking profits on Bitcoin BTC/USD.

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 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.

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