Fantasy Hopium Of The Momo Crowd Comes Crashing Down, EU Warns Citizens To Stockpile Food

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

Momo Hopium Dashed

Please click here for an enlarged chart of General Motors Co (GM).

Note the following:

• This article is about the big picture and not an individual stock.  The chart of GM is being used to illustrate the point.
• Momo crowd is one of the two most important groups in the stock market.  Momo crowd doesn't do much analysis and lives in a fantasy hopium world.  The prudent investors need to ask this question: What will happen to the stock market if momo crowd fantasy hopium comes crashing down?
• The chart provides us with an answer.
• President Trump has been very clear that he wants automotive production in the United States.  He has also been very clear that significant tariffs on automobiles were coming.
• The chart shows that the momo crowd has been running up GM stock on fantasy hopium.  Momo gurus conjured up all kinds of fantasies — exemptions, carve outs, delays, and low tariff rates.
• Yesterday, momo crowd fantasy hopium came crashing down when President Trump announced 25% tariffs on imported cars and light trucks.
  • There are no delays. Tariffs go into effect on April 2nd and the US starts collecting tariffs on April 3rd.
  • The tariff rate is high.
  • With the exception of US made auto parts, there are no exemptions and carve outs.
• The chart shows the gap down in GM stock.
• GM imports about 49% of its vehicles.  As a reference, Ford Motor Co (F) imports about 20% of its vehicles.  Stellantis NV (STLA), the owner of Chrysler and Jeep, is less exposed because it manufactures more components in the United States.
• In our analysis, the total hit to the automotive industry will be about $80B.
• Further in our analysis, GM earnings may be hit by 25% – 30%.  With that kind of hit to the earnings, GM stock should be down a lot more.  By now you may be asking why GM stock is not down more.
  • Momo crowd is aggressively buying GM stock as buy the dip mentality prevails.
  • Momo gurus are urging their followers to buy GM stock as momo gurus contend that tariffs will be short-lived.
• Prudent investors should pay attention to what President Trump is saying.  President Trump is clearly saying that these tariffs are permanent.  
• In our analysis, investors should not totally ignore what President Trump is saying, even though he frequently changes his mind.
• The reason that our past calls were so successful during President Trump’s first term is because we learned to focus on what President Trump was trying to do.
• Market mechanics continue to be on the upside.  Without the buying pressure from market mechanics, the market would have been down significantly this morning.  The drop in the market after hours on the tariff announcement was bought.
• The employment picture continues to be steady. Initial jobless claims came in at 224K vs. 225K consensus.  Initial claims is a leading indicator and carries heavy weight in the Arora Report’s adaptive ZYX Asset Allocation Model with inputs in ten categories.  In plain English, adaptiveness means that the model changes itself with market conditions.  Please click here to see how this is achieved. Most models on Wall Street are static.  They work for a while and then stop working when market conditions change.
• Third estimate for Q4 GDP came at 2.4% vs. 2.3% consensus.  This is a lagging indicator.  However, you need to pay attention to it because institutional investors pay attention to it.
• Feds’ favorite inflation gauge PCE will be released tomorrow at 8:30 am ET.

Stock 72 Hours Of Food

Prudent investors should pay attention that risks across the globe are rising.  In the latest development, the European Union is asking citizens to stockpile 72 hours of food.  The trigger for this alarming call from the EU is twofold.

• Russia appears to be succeeding in settling the Ukraine War on favorable terms. 
• Trump administration's confrontational approach towards Europe.

China

China has developed a new powerful ship to cut undersea cables.  Taiwan is highly dependent on undersea cables.  There is increasing belief that China is preparing to attack Taiwan in 2027.

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 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 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.