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

Jobs Report Bullet Dodged

Please click here for an enlarged chart of SPDR S&P 500 ETF Trust (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The chart shows that the stock market is at the 200 day moving average.  Here are the key points:
  • The 200 day moving average is very powerful, and all investors should pay attention to it.
  • The reason the 200 day moving average is so powerful is because legions of investors believe in it and act on it, and the media publicizes it.
  • Other than the deeply held myth, the 200 day moving average does not have any special power.  Afterall, why not a 190 day or 210 day moving average?
  • As you know, The Arora Report is rigorously analytical.  Rigorous analysis shows that the 200 day average by itself has no magical power.
  • Legions of investors buy stocks when the stock market pulls back to the 200 day moving average because they erroneously consider the 200 day moving average as a major support.  There is no analytically valid basis for this myth.
  • Legions of investors also sell stocks when the stock market breaks below the 200 day moving average.  Again, there is no analytical basis for this belief.
• RSI on the chart shows that the stock market is oversold.  Oversold markets tend to bounce.
• The stock market just dodged a bullet from the jobs report.  Wall Street's positioning was such that both a weaker jobs report or a stronger jobs report would have caused a big sell off.  Understanding the important market mechanic of positioning can give investors a big edge.  Wall Street professionals keep nuances of market mechanics close to the chest because of their very high value.
• The jobs report came roughly inline with expectations.  Here are the details of the jobs report:
  • Nonfarm payrolls came at 151K vs. 159K consensus.
  • Nonfarm private payrolls came at  140K vs. 145K consensus.
  • Average hourly earnings came at 0.3% vs. 0.3% consensus.
  • Average work week came at 34.1 hours vs. 34.2 hours consensus.
  • Unemployment rate came at 4.1% vs. 4.0% consensus.

Germany

An important change that was unthinkable until last week is beginning to happen.  President Trump's comments about Russia are shaking Europe's confidence, particularly Germany. The U.S.' second largest overseas military presence is in Germany.

Since the end of the Cold War, Germany has renounced building its own nuclear capabilities and opted to be protected by the U.S.  Friedrich Merz, Germany's Chancellor-in-waiting, has opened the door for Germany to go nuclear.

Magnificent Seven Money Flows

In the early trade, money flows are positive in NVIDIA Corp (NVDA).

In the early trade, money flows are neutral in Alphabet Inc Class C (GOOG) and Meta Platforms Inc (META).

In the early trade, money flows are negative in Amazon.com, Inc. (AMZN), Microsoft Corp (MSFT), Tesla Inc (TSLA), and Apple Inc (AAPL).

In the early trade, money flows are negative in S&P 500 ETF (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

Details of the U.S. crypto reserve are disappointing, but more hype is ahead.  Here are the details:

• The reserve will be capitalized with Bitcoin, the U.S. government seizes in criminal and civil cases.
• No new funding is going into the crypto reserve at this time.
• Bitcoin fell on this news as expectations were that the administration would set aside funds to buy bitcoin.
• Bitcoin whales appear to have sold on the news.
• Mom and pop appear to have aggressively bought the dip.
• More hype could be ahead from the White House crypto summit today.
• On the hope of positive announcements from the summit, bitcoin is seeing buying. As of this writing, bitcoin has regained about half of its losses from the reserve capitalization plan.

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 is very popular.  The 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.