Benzinga - by The Arora Report, Benzinga Contributor.
To gain an edge, this is what you need to know today.
Financial Conditions Ease Please click here for an enlarged chart of crude oil futures.
Note the following:
- Oil is most sensitive to developments in the Middle East.
- The chart shows that oil is falling after an Iranian attack on Israel.
- The chart shows that oil is consolidating around the upper trendline.
- The best of all scenarios is playing out in the Middle East.
- Although there are contradictory reports, it is near certain that Iran informed Turkey and Turkey informed the U.S. of the Iranian attack in advance.
- The reason Iran informed the U.S. in advance is because Iran’s purpose was to show force and save face but not inflict much damage and for the U.S. to restrain Israel.
- The advance notice allowed the U.S. and Israel to shoot down 99% of about 300 drones and missiles, resulting in very little damage.
- Iran issued several statements that the operation was concluded.
- Biden is working hard to restrain Israel.
- Not only is oil down, stocks are being aggressively bought on the best Middle East scenario being played out.
- In The Arora Report analysis, Iran’s response to directly attack Israel has increased risks in the long term, especially without a robust response from Israel.
- Further, in The Arora Report analysis, Iran is buying time to build its nuclear capability.
- The momo crowd, being in a celebratory mood, is oblivious to several negative developments as outlined below:
- A market research firm with a good track record is projecting that Apple Inc (NASDAQ: AAPL) iPhone shipments fell about 10% in the last quarter. Apple shipped 50.1M iPhones according to this report. The consensus from Wall Street analysts is 51.7M iPhones. This is the worst drop in Apple iPhone shipments since the COVID lockdown.
- As full disclosure, Apple is in the ZYX Buy Model Portfolio from The Arora Report and is long from $4.68. The prior Arora call has been to hedge the Apple position. Stay tuned for the plan on hedges and the potential change in the buy zone.
- Tesla Inc (NASDAQ: TSLA) is laying off 10% of its workforce. At the same time, Tesla is cutting the price for Full Self-Driving subscription to $99 from $199. In The Arora Report analysis, this is a brilliant move by Musk.
- New economic data shows good news for the economy but bad news for the momo crowd. After a brief hiatus, the U.S. consumer is back on a spending binge. Since the U.S. economy is 70% consumer based, prudent investors pay attention to retail sales. Here are the details:
- Headline retail sales came at 0.7% vs. 0.4% consensus.
- Retail sales ex-auto came at 1.1% vs. 0.5% consensus.
- In The Arora Report analysis, to control inflation, it is important that financial conditions do not become too loose. The root cause of financial conditions becoming too loose is Fed chair Powell. Due to the high importance of this matter, we are starting work on a podcast on this subject. Powell is trying his best to loosen financial conditions by jawboning at a time when the data clearly shows that Powell should be trying to tighten financial conditions. Conservative analysts are concluding that Powell is acting this way to help with Biden’s re-election. Trump has said that he will not reappoint Powell.
- If retail sales continue to be strong, it argues against cutting rates at all. In The Arora Report analysis, the data so far shows that even a rate hike should be on the table. None of this is good for the stock market. However, keep in mind that the stock market is controlled by the momo crowd, and the momo crowd does not do any deep analysis.
In the early trade, money flows are negative in AAPL, TSLA
In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (ARCA:SPY) and Invesco QQQ Trust Series 1 (NASDAQ: QQQ).
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 like a yoyo in gold in the early trade. Smart money is inactive in the early trade.
For longer-term, please see gold and silver ratings.
The most popular ETF for gold is SPDR Gold Trust (ARCA:GLD). The most popular ETF for silver is iShares Silver Trust (ARCA:SLV).
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 (ARCA:USO).
BitcoinBitcoin (CRYPTO: BTC) fell like a rock when the news of Iran’s attack on Israel broke. For prudent bitcoin investors, this busts the popular myth propagated by bitcoin whales to lure in retail investors that bitcoin is a hedge against geopolitics.
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.
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.
This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.
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