Momo Crowd Buys Stocks On Trump Imposing New Tariffs, China Frees Up Billions To Buy Gold

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

New Tariffs

Please click here for a chart of Nucor Corp NUE.

Note the following:

• This article is about the big picture, not an individual stock.  The chart of NUE is being used to illustrate the point.
• NUE is the biggest steel maker in the U.S.
• The chart shows when the stock started falling on weakening steel demand.
• The chart shows when earnings were reported.  NUE guided earnings below consensus.
• The chart shows the stock has been rising in anticipation of Trump imposing tariffs.
• The chart shows that the stock is gapping up this morning on Trump imposing 25% tariffs on all steel and aluminum from all countries.
• Trump is also threatening that he will impose reciprocal tariffs this week. The threat of reciprocal tariffs, in The Arora Report analysis, will be a much bigger deal.
• What a difference a week makes. Last Monday, the stock market opened down significantly when Trump had not removed the tariffs on Canada and Mexico.  Today, on Trump imposing tariffs on steel and aluminum, the momo crowd is aggressively buying stocks. 
• In The Arora Report analysis, Trump is not likely to quickly back off from the tariffs on steel and aluminum like he previously did with Canada and Mexico.  
• At one time, China was the biggest exporter of steel and aluminum to the U.S.  Now, Canada is the biggest exporter of steel and aluminum to the U.S. Canada produces a lot of steel and aluminum but it also gets a lot of steel and aluminum from China.
• China has freed up billions of dollars to buy gold.  Please see the gold section below.
• In The Arora Report analysis, prudent investors need to make a special note of momo crowd behavior.  The momo crowd is now buying stocks on Trump imposing tariffs.  Yet, tariffs pose a risk.  As such, logic would dictate trimming stocks, not buying stocks, on the imposition of tariffs.  In The Arora Report analysis, part of the momo crowd's actions are the result of Trump's rising popularity.  A CBS poll shows Trump's approval rating is at a new high.
• Sentiment remains in the extreme positive zone.  The momo crowd buying last week was the most aggressive since late 2021.  You may recall a bear market ensued in 2022 when Nasdaq lost 33%.  As a reminder, sentiment is a contrary indicator.  In plain English, extreme positive sentiment is a sell signal.  However, as we have previously shared, sentiment is not a precise timing signal.  Investors should use a 360 degree analysis, such as the adaptive ZYX Asset Allocation Model with inputs in ten categories.
• This is a big week for inflation data.  Consumer Price Index (CPI) will be released on Wednesday at 8:30am ET.  Producer Price Index (PPI) will be released on Thursday at 8:30am ET.

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 NVIDIA Corp (NVDA).

In the early trade, money flows are negative in Tesla Inc (TSLA).

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 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.