Momo Crowd Buying Stocks On Bad News From Jolts And ADP

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

Buying On Bad News

Please click here for an enlarged chart of iShares 20+ Year Treasury Bond ETF TLT.

Note the following:

• The chart shows that bonds have rapidly moved up after consolidating in the mini support zone.
• The chart shows that bonds are now in the resistance zone.
• Higher bonds mean lower yields.  For the time being, investors are buying stocks on lower yields. Yields have rapidly dropped on softer economic data.
  • JOLTS report came at 8.059M vs. 8.34M consensus.
  • Factory orders came at 0.7% vs. 0.6% consensus.
  • Automatic Data Processing Inc ADP is the largest payroll processor in the country and uses its data to give an advanced glimpse of the jobs picture ahead of the official jobs report. ADP payrolls came at 152K vs. 175K consensus.
• Initial jobless claims will be released Thursday at 8:30am ET providing more data.
• Looking ahead, the most important data is the jobs report, known as the mother of all reports, that will be released on Friday at 8:30am ET.
• The momo crowd always believes that bad news is good news and good news is great news.  However, prudent investors need to remember that the momo crowd is only one group in the stock market. In contrast to the momo crowd, smart money looks ahead knowing that “bad news is good news” works only as long as earnings hold up.  Historically, when economic data starts showing weakness, earnings get hit, leading to a drop in the stock market.  
• History shows that somewhere along the way, a transition happens from “bad news is good news” to “bad news is bad news.” Stay tuned to The Arora Report – we will share with you when the transition starts occurring. In the meanwhile, consider continuing to follow the protection band which is bullishly positioned relative to its benchmark. 

Europe

Tomorrow, the European Central Bank (ECB) will announce its rate cut decision. The consensus is for a rate cut.

India

Indian stocks rebounded, rising more than 2% as a coalition partner affirmed support for Modi.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc AAPL, Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Microsoft Corp MSFT, NVIDIA Corp NVDA, and Tesla Inc TSLA.

In the early trade, money flows are positive 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.

Note for new investors: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.

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

API crude inventories came at a build of 4.052M barrels vs. a consensus of a draw of 1.9M barrels.

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

There is buying in Bitcoin BTC/USD as a two year cup and handle pattern is being highly promoted. The cup and handle is a bullish technical pattern.

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.

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 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.