Strong Seasonality For The Next Two Weeks, Blind Money, Relief Rally On Far Right Win In France

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

Strong Seasonality

Please click here for an enlarged chart of Invesco QQQ Trust Series 1 QQQ.

Note the following:

• The chart shows that QQQ is levitating but stalled near the high.
• The chart shows that RSI has pulled back, indicating loss of internal momentum.
• The chart shows that QQQ is significantly above the support zone. This indicates that there is high risk in this market that investors are ignoring for the time being.
• The chart shows that the volume is low, indicating lack of conviction.
• Historically, the foregoing set up often leads to a big move. The move gets exaggerated in whichever direction the stock market initially starts going.
• QQQ is entering a period of very strong seasonality.  Over the last 24 years, QQQ has consistently been strong over the first two weeks of July.  
• In July, typically stocks are strong because blind money flows into Wall Street for the new quarter. Blind money is the money that investors send to Wall Street without any analysis and without any consideration for market conditions.
• Blind money influx is followed by money flowing into Wall Street because investors feel good about the July 4 holiday.
• Paradoxically, low volume makes it easy for the momo crowd to push the stock market higher.   
• Historically, when the stock market is up as much as it is this year, it ends the year even higher.
• Investors should also be aware that a dip in the market in the period of a late August to October is quite common.
• In The Arora Report analysis, in the middle of all the bullishness, prudent investors should keep in mind the following important factors:  
  • Sentiment is extremely positive. At the extremes, sentiment is a contrary signal.  In plain English, this means the current extreme positive sentiment is a sell signal. As we have been sharing with you, it is important to pay attention to sentiment, but sentiment is not a precise timing signal.  
  • Bonds are starting to see selling on the prospect of a Republican sweep after Biden’s debate performance.  
  • Market gains are heavily concentrated in AI stocks. This is not a sign of a healthy market.  
• Markets are also seeing a relief rally after an impressive win by Marine Le Pen’s far right National Rally party. There are two reasons for the relief rally.
  • As impressive as the win is, it is less than feared.
  • Macron’s party and left leaning parties are racing to stop Le Pen’s momentum in the second round.
• In The Arora Report analysis, the relief rally may not last as investors begin to focus on the long term impact of a far right win in France.  
• The meme crowd is trying to resurge again. Even though the meme crowd sustained huge losses, the meme crowd’s playbook has not changed. Their main technique is engineering short squeezes. Online pet supply retailer Chewy Inc CHWY has become the latest meme stock with Keith Gill taking a $245M stake.
  • Meme crowd darling GameStop Corp GME is coming under pressure on the prospect of the meme crowd moving away from GME and towards CHWY.
• For prudent investors, the meme crowd will continue to provide short term trading opportunities. Prudent investors need to keep in mind that the meme crowd at its core is simply a crowd ganging up to manipulate certain stocks.
• 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.

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, and Tesla Inc TSLA.

In the early trade, money flows are neutral in NVIDIA Corp NVDA.

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

bigger edge by knowing when smart money is buying stocks, gold, and oil. The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV. The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is seeing buying along with tech stocks.

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.