Aggressive Buying On PPI, Trump Tariff Details, And Potential TikTok Sale To Musk

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

Aggressive Buying

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:

• The chart shows that yesterday the stock market fell below the breakout line but recovered from the lows later in the session.
• The chart shows the support zone.  The support zone is a natural place to contain any stock market correction.
• The chart shows the stock market is attempting to cross the breakout line to the upside after the release of Producer Price Index (PPI) data.
• Inflation at the producer level came cooler than expected.  Here are the details:
  • Headline PPI came at 0.2% vs. 0.3% consensus.
  • Core PPI came at 0.0% vs. 0.2% consensus.
• In The Arora Report analysis, PPI does not paint an accurate picture of inflation in the U.S. because of the high percent of goods produced in China and China is currently experiencing deflation.
• As Inauguration Day approaches, details of Trump's tariffs plan are emerging.  The latest report is that Trump's team is discussing slowly increasing tariffs by 2% – 5% per month.  The strategy is designed to reduce any potential spike in inflation while providing negotiating leverage with other countries, including China.
• China is deciding what to do with TikTok and the looming ban in the U.S.  There is a report that Chinese officials are discussing the possibility of selling TikTok to Elon Musk, who is the CEO of social media platform X as well as the CEO of one of the Magnificent Seven stocks Tesla Inc.  TSLA stock has become an indicator of market sentiment.  TSLA stock jumped up on the TikTok news.
• In the early trade, investors are aggressively buying stocks on excitement over PPI, Trump's tariff approach and Musk potentially buying TikTok.
• Consumer Price Index (CPI) will be released tomorrow at 8:30am ET and may be market moving.
• In The Arora Report analysis, prudent investors should wait for CPI before any major moves.
• Prudent investors should note that the rally in long bonds on weaker PPI data has met with selling.  As of this writing, the long bond has not only given up the gains; it is now negative.  Here is the question for investors: Will the stock market pay attention to the bond market? If the stock market starts paying attention to the bond market, early gains in the stock market may reverse.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc., Alphabet Inc Class C, NVIDIA Corp, and TSLA.

In the early trade, money flows are neutral in Apple Inc and Microsoft Corp.

In the early trade, money flows are negative in Meta Platforms Inc.

In the early trade, money flows are positive in SPY and Invesco QQQ Trust Series 1.

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.  The most popular ETF for silver is iShares Silver Trust.  The most popular ETF for oil is United States Oil ETF.

Bitcoin

Buying in Bitcoin spiked on cooler PPI, but the rally has met with selling.

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.