Aggressive Stock Dip Buying – Iran Downplays Israeli Attack – Fed Official Talks Rate Hike
Aggressive Buying
Please look at for an enlarged chart of E-mini S&P 500.
Note the following:
- The chart shows a big drop in stock futures on the news of an Israeli attack on Iran.
- The strike targeted areas around Isfahan in central Iran.
- Isfahan is known for a nuclear facility and also a drone factory. Neither the drone factory nor the nuclear facility was struck.
- Iran is downplaying the attack, claiming no damage was done.
- By attacking Isfahan, Israel is sending a message that it is capable of attacking Iran’s nuclear facility.
- Iran appears to be claiming that it is capable of attacking Israel’s nuclear facilities.
- The chart shows that the dip in stock futures was aggressively bought.
- Aggressive buying continues as of this writing. The VUD indicator is green, indicating net demand for stocks.
- The buying is entirely by the momo crowd.
- Oil rallied on the attack but has given up all of its gains as of this writing.
- Prudent investors should note that quite a shift is beginning to happen at the Fed. Due to the high importance of this matter, we are preparing an important podcast on this subject.
- New York Fed President John Williams said, “if the data are telling us that we would need higher interest rates to achieve our goals, then we would obviously want to do that.” As usual, the momo crowd is oblivious.
- 2024 started with momo gurus claiming that they knew for sure that the Fed would cut interest rates six times in 2024 and two more times in 2025. In the face of overwhelming data, now momo gurus have conceded that they were wrong. The new momo narrative to persuade investors to buy stocks is that rate cuts do not matter because the Fed is not going to raise rates.
- In The Arora Report analysis, the bar is very high for the Fed to raise rates primarily due to pre-election political pressure.
- In The Arora Report analysis, if the Fed were to raise rates, the stock market can easily fall 20%.
- For this reason, prudent investors should stay tuned to the economic data in the Morning Capsules.
- Tesla Inc has fallen below the psychological level of $150 in the premarket. TSLA stock is down 40% year to date and 64% from its all time high.
- TSLA is the only magnificent seven stock that is not in the Arora ZYX Buy Model Portfolio.
- Prudent investors should note that it is equally important what you do not buy and hold as it is what you buy. This illustrates the proven power of methods like the ZYX Change Method.
- It is worth a reminder that on Monday this week, and also yesterday, smart money sold into the strength generated by momo crowd buying.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Meta Platforms Inc .
In the early trade, money flows are neutral in Apple Inc and Microsoft Corp .
In the early trade, money flows are negative in Amazon.com, Inc. , Alphabet Inc Class C , NVIDIA Corp , and TSLA.
In the early trade, money flows are positive in SPDR S&P 500 ETF Trust and Invesco QQQ Trust Series 1 .
Momo Crowd And Smart Money In Stocks
The momo crowd is aggressively buying stocks in the early trade. Smart money is inactive in the early trade.
Gold
The momo crowd is buying gold in the early trade. Smart money is lightly trimming gold positions in the early trade.
For longer-term, please see gold and silver ratings.
The most popular ETF for gold is SPDR Gold Trust . The most popular ETF for silver is iShares Silver Trust .
Oil
The momo crowd is selling oil in the early trade. Smart money is inactive in the early trade.
For longer-term, please see oil ratings.
The most popular ETF for oil is United States Oil ETF .
Bitcoin
On the news of the Israeli attack on Iran, Bitcoin briefly fell below $60,000 in spite of all of the positive pitches to buy bitcoin because of the halving. Since then, bitcoin has recovered along with tech stocks. Bitcoin is now trading over $65,000 as of this writing.
The drop in bitcoin on the Israeli attack again busts the myth propagated by bitcoin whales that bitcoin is a hedge against risks.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror.
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.
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 seven 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.
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