Tech Stocks Approach Resistance Zone, Full Scale War Potential In Middle East, China Stimulus Hopes

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

Tech Stocks Approach Resistance

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

Note the following:

• The chart shows that tech stocks, as represented by QQQ, are approaching the resistance zone.
• Prudent investors should note that at a time when Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) have hit a new high, QQQ has not. The reason is that tech stocks are underperforming.  
• RSI on the chart shows that QQQ is overbought.
• We shared with you prior to the Fed rate cut that long bonds may not respond as investors expected.  That call continues to prove spot on every day.  Long bonds are falling again this morning.  This will start impacting the stock market in due course unless Fed speakers come out and make more dovish comments.  For the time being, the momo crowd is oblivious.
• In Lebanon and Northern Israel, Hezbollah and Israel are inching towards a full scale war.  U.S. diplomacy is in full swing to stop a full scale war.  The momo crowd is oblivious, but prudent investors should pay attention to developments in the Middle East.
• Sentiment has been lifted all across the globe on government stimulus hopes in China.
  • The People’s Bank of China (PBC) cut the 14 day reverse repurchase rate by 10 basis points to 1.85%.
  • Central Bank Governor Pan Gongsheng will hold a conference tomorrow.

Europe

European stocks are holding up on more rate cut hopes in spite of unexpected economic contraction.

• Eurozone flash Manufacturing PMI came at 44.8 vs. 45.7.
• Eurozone flash Services PMI came at 50.5 vs. 52.3.
• A number less than 50 indicates economic contraction.

Magnificent Seven Money Flows

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

In the early trade, money flows are neutral in Amazon.com, Inc. AMZN.

In the early trade, money flows are negative in Apple Inc AAPL and Microsoft Corp MSFT.

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

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a 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

Harris has now fully jumped on to the crypto bandwagon after watching heavy campaign contributions from the crypto industry to the Trump campaign.

Bitcoin BTC/USD is seeing buying on Harris support.

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 five 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.