Powell Speaks The Truth

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

Please click here for an enlarged chart of SPDR S&P 500 ETF Trust SPY which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

It is worth a reminder that The Arora Report is politically agnostic. Our sole job is to help our members extract the maximum amount of money out of the markets with the least possible risk.
The price action on the chart shows that the rip roaring Trump rally is taking a breather.
The chart shows that the stock market is still above the breakout line.
RSI on the chart shows that the stock market has pulled back, reflecting a loss of momentum. The stock market is still overbought.
The chart shows that the volume remains low. This indicates that institutional investors are not rushing to buy stocks.
Yesterday, Powell spoke that truth – the market did not like it. Powell said, "The economy is not sending any signals that we need to be in a hurry to lower rates." Powell elaborated, "The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully."
Powell's remarks brought some selling into stocks and bonds.
This morning, in the early trade, selling continues.
The reason for some selling is that the prevailing wisdom on Wall Street has been that another rate cut in December was a sure thing. The Arora Report has been questioning Wall Street's wisdom and sharing with you that the data does not support another rate cut.
Some conservative commentators are upset believing that the reason Powell started rate cuts with a 50 bps cut was to help Kamala Harris get elected. Now that Trump has been elected, Powell is in no hurry to cut rates.
In The Arora Report analysis, even though the data does not support a rate cut in December, Powell is going to feel pressure from Trump and Republicans to cut rates. There is also a significant amount of data between now and the December Fed meeting.
In The Arora Report analysis, based on a 360 degree view, including the political pressure and the pressure from Wall Street to cut rates, the probability of a rate cut in December is now about 60%.
There is consternation about several Trump picks. Impacting the market most are Trump's picks of RKF Jr, Matt Gaetz, and Pete Hegseth. These picks are bringing selling in vaccine makers such as Moderna Inc MRNA, BioNTech SE ADR BNTX, Novavax Inc NVAX, Merck & Co Inc MRK, and Pfizer Inc PFE. There is also selling in other healthcare stocks, including weight loss drug companies Eli Lilly And Co LLY and Novo Nordisk A/S NVO, and packaged food stocks such as The Kraft Heinz Co KHC. There is also selling in defense stocks such as Boeing Co BA, Lockheed Martin Corp LMT, Northrop Grumman Corp NOC, and Rtx Corp RTX. There is also selling in big tech stocks.
The latest economic data is strong. The U.S. economy is about 70% consumer based. For this reason, prudent investors pay attention to retail sales. Here are the details of the just released data:
- Retail sales came at 0.4% vs. 0.3% consensus.
- Retail sales ex-auto came at 0.1% vs. 0.2% consensus.
There are hundreds of indicators. At The Arora Report, the system has been refined through decades of research to share with you only those indicators that matter. Normally, we do not mention the NY Fed Empire State Manufacturing Index. Today, we are mentioning it due to its exceptional strength. The index came at 31.2 vs. 3.3 consensus. This indicates that manufacturing in the New York area has picked up steam. If similar strength is happening in the rest of the country, that would argue against further cutting interest rates. The problem for investors is that stock valuations are so high that to sustain them, rate cuts are needed.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Tesla Inc TSLA.

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, and NVIDIA Corp NVDA.

In the early trade, money flows are negative in S&P 500 ETF (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

Even the slightest dips in Bitcoin BTC/USD are being bought.

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.