Here Is How Investors Can Capture Opportunities From The Election

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

The Plan

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

Note the following:

• Going into the election, the most important chart is that of the bond market.  The reason is the reaction to the election from the bond market is likely to be correct compared to the first reaction from the stock market.
• The chart shows the contrary Arora call that bonds would fall when the Fed cut interest rates by 50 bps.  At the time of the contrary Arora call, everyone was predicting that bonds would go up.
• The chart shows that the Arora call has proven spot on.
• The chart shows that bonds are now at the bottom band of the top support zone.
• Consider keeping this chart handy and see if bonds rally above the top band of the top support zone or they break down and move towards the bottom support zone.
• In addition to understanding the chart of the bond market, the following is the essential foundation of how to capture opportunities after the election.
  • Wall Street positioning.  Positioning is an important Wall Street mechanic.
  • Retail investor positioning
  • Your positioning
• Wall Street is positioned for the following:
  • A significant rally in stocks, bonds, gold, and the dollar after the election
  • Senate control switching from Democrats to Republicans
  • House control switching from Republicans to Democrats
  • An even probability of a Trump win or a Harris win.
• Here is the positioning of retail investors:
  • Republican retail investors are heavily positioned in the Trump trade.
  • Democrat retail investors are heavily positioned in the Harris trade.
• The problem with positioning of retail investors is that if their candidate wins, they will do fine.  However, if the other candidate wins, they will incur massive losses. This is not the way to maximize the wealth you generate over your lifetime. It is important to keep your politics separate from your investing.  
• In The Arora Report analysis, Wall Street is oblivious to the simple fact that the stock market has been front running the election.  
  • Historically, there is anxiety and a pullback before the election in September and October.  Historically, when the election is over, the overhang of anxiety lifts irrespective of who wins, and the stock market rallies.
  • This time is different because there has not been any anxiety, and there was not a pullback in September and October.  The reason is that Wall Street has been front running the election.
  • There is no recent historical precedent of Wall Street front running the election.
  • Historically smart money uses a combination of hedging and lightening up positions before the election.  This time is different in that smart money has been aggressively hedging, more than any other recent election, but has not been lightening up positions.
  • Even though there is no precedent of election front running, there are hundreds of precedents of Wall Street front running less important events.  A typical reaction after the event is over is to sell the news.
• In The Arora Report analysis, prudent investors should be aware that there is a fair probability of a sell the news reaction.  However, the probability of a rally is higher because of the power of the momo crowd. 
• Going into the election, investors should be very cognizant of the positioning of their own portfolios.  The Arora Report portfolios are well balanced between the Harris trade and the Trump trade.  
• The Arora Report portfolios are also sufficiently protected with the protection band and there is sufficient cash to take advantage of new opportunities.  Investors who are not holding enough cash will not be able to take advantage of new opportunities.

Magnificent Seven Money Flows

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

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

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

Bitcoin BTC/USD is range bound.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  The proprietary protection band from The Arora Report is very popular.  The protection band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.

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.