World's Smartest Banker Warns Investors, Banks To Kick Off Earnings Season, Bitcoin Hits $118K

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

Earnings Season Ahead

Please click here for an enlarged chart of JPMorgan Chase & Co JPM.

Note the following:

• This article is about the big picture, not an individual stock.  The chart of JPM stock is being used to illustrate the point.
• The trendline on the chart shows a very strong move up in JPM stock.
• The chart shows JPM stock pulled back when RSI indicated the stock was overbought.
• Banks will kick off earnings season next week with JPMorgan Chase, Citigroup Inc (C), and Wells Fargo & Co (WFC) first out of the gate on Tuesday.
• JPMorgan Chase is the largest bank in the world by market cap.  Jamie Dimon has been the CEO of JPMorgan Chase since 2006.  Dimon is considered the smartest banker in the world.  Now, the smartest banker in the world is warning investors.  When the smartest banker in the world who also happens to be the CEO of the largest bank warns, prudent investors listen.  As usual, the momo crowd is oblivious.  As full disclosure, JPM is in our ZYX Buy Core Model Portfolio. 
  • Dimon is warning that the markets are underpricing the potential risk of higher interest rates.  Dimon said regarding the risk, "The market is pricing a 20% chance, I would price in a 40-50% chance."  He also said the markets were being complacent in light of the tariffs.
• There are indications today that Dimon might be right.
  • President Trump is imposing 35% tariffs on Canada.
  • There is also a report that President Trump plans to impose blanket tariffs of 15-20% on countries that have not received tariff notifications.
  • Concern about tariffs is bringing in selling in the early trade.
• On the positive side, the Trump administration is touting that a deal with Europe is close.
• The $22B Treasury auction yesterday was good.  Here are the details:
  • $22B 30 year Treasury bond reopening
  • High yield: 4.889% (When-Issued: 4.890%)
  • Bid-to-cover: 2.38
  • Indirect bid: 59.8%
  • Direct bid: 27.4%
• There are two important statements from Fed officers.
  • Fed Governor Waller said the Fed balance sheet is likely to drop to $5.8T.
  • San Francisco Fed President Daly expects two rate cuts this year.

Japan

Yields in Japan are rising.  Prudent investors should keep an eye on yields in Japan due to the carry trade that can cause a significant drop in the U.S. stock market as it did in early August 2024 – S&P 500 fell 5% over 3 days.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. (AMZN).

In the early trade, money flows are negative in Apple Inc (AAPL), 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 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 hit $118K, a new all time high, on extreme bullishness in the markets.

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.