Deploy Cash And Reduce Hedges; Highest Probability Scenario Comes True; NATO Contention

Deploy Cash And Reduce Hedges

Our highest probability scenario has come true in the Israel Iran war. This scenario was given in advance as the highest probability scenario on June 13 morning, just after Israel’s first attack. Our readers were once again ahead of the curve and had clarity at a time when there was a lot of confusion among most investors.  Clarity and getting ahead of the curve are two pillars to maximizing the wealth you generate over your lifetime.

A ceasefire has been reached between Iran and Israel.  In our analysis, immediately following a ceasefire, small infractions are historically common in war and should not concern investors.  It is time to deploy cash and reduce hedges, preferably on pullbacks. 

Highest Probability Scenario

Please click here for an enlarged chart of oil futures (CL_F). The chart of oil is important because oil is the most sensitive indicator of events in the Middle East.

Note the following:

• The chart shows a slight rise in oil prices when the news broke on Qatar closing its airspace.
• The chart shows oil started dropping even before the news broke that Iran had informed Qatar and the U.S in advance of the missile attack.
• The chart shows the continued dramatic fall in oil prices.
• The chart shows another leg lower in the evening when speculation started to build that a ceasefire was in the works.  The speculation turned out to be correct, leading to another dip.
• Here is the most important point for prudent investors: yesterday, oil prices led stock prices.  Investors should always be looking out for leading indicators.  
• Investors should always be looking for what smart money is doing.  Yesterday, smart money was selling oil on the news of Iran's attack on the U.S. military base in Qatar while the momo crowd was panicking and selling stocks on the news.  Smart money bought stocks on the dip caused by momo crowd selling.  It is important to remember the momo crowd is driven by momo gurus, news headlines, price momentum, social media, and sentiment.  In contrast, smart money is driven by deep knowledge and 360 degree analysis.  
• Getting ahead has its advantages.  As full disclosure, in anticipation of this scenario, we recently gave signals to take partial profits on defense stock Rtx Corp (RTX), gold ETF SPDR Gold Trust (GLD), and gold miner Newmont Corporation (NEM) in advance of the ceasefire.  This morning, gold and defense stocks are falling on the news of a ceasefire.
• President Trump is heading to a NATO summit.  The summit is likely to be contentious due to differing opinions on defense spending between NATO members.  The results of the NATO summit may provide more opportunities.
• This morning, the momo crowd is aggressively buying stocks.
• Fed Chair Powell testified at 10am ET today before the House Financial Services Committee.  In our analysis, Powell will come under intense pressure to agree to cut rates.  
• Prudent investors should note that cracks are appearing in the FOMC's united front under pressure from President Trump.  The Fed's Bowman and Waller have come out in favor of rate cuts.  You guessed it right – both Bowman and Waller are Republicans and were appointed by President Trump. Both may be trying to compete for the job of the next Fed Chair – they need to be in President Trump's good graces.  
• In our analysis, as politics enter the Fed in a big way, risks will rise for long term investors.  Long term investors will need to be vigilant and be ready to not only generate wealth but protect their wealth.  The easiest way is to stay tuned to the Morning Capsules and our Protection Band. 
• Consumer confidence was released at 10am 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), NVIDIA Corp (NVDA), and 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 seeing buying along with buying in speculative stocks.

Arora Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  Our proprietary 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.