Here Is The Game Plan – President Xi Takes Advantage Of President Trump’s Pain Point – SPDR S&P 500 (ARCA:SPY)

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

Game Plan For Investors

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 on April 21 the stock market fell and touched the low band of support zone 2.  The fact that the stock market bounced after touching the low band of support zone 2 is a positive in the short term.  If the stock market had broken the low band of support zone 2 that would have been a negative.
• As a reader of our report, you were prepared for a scenario where China’s President Xi takes advantage of President Trump’s pain point.  Please read prior articles for details.  The analysis we shared with you on April 11 has now proven spot on.  We wrote:

In our analysis, the tariff reversal has now exposed President Trump’s pain threshold to foreign leaders.  Foreign leaders will take advantage of this knowledge by taking a tougher stand in negotiations with the U.S. on trade.

• Now, China is taking advantage of President Trump’s pain point.
• Yesterday morning, the stock market rallied after Trump made overtures to China and significantly softened his stance.  The markets were expecting China to eagerly embrace President Trump’s significant backtracking and come running to offer a deal.
• In the early trade, the rally is losing more steam as China said there are no talks on reaching a deal.  Unlike President Trump’s warm approach to China, the Chinese response is harsh.  The U.S. is considering dramatically slashing China tariffs to persuade China to come to the table.
• After analyzing statements coming from Chinese officials, in our analysis, President Xi of China is betting that Trump will back down to save face.  
• In our analysis, if President Xi is proven right that President Trump will back down to save face, it will be a big negative for the U.S. economy and the stock market in the long term.  As a heads up, in such a scenario, The Arora Report call will be four-fold:
  • More tactical trades and less strategic investments
  • More allocation to safe havens
  • More international diversification
  • Buy Chinese stocks
• In the event of the foregoing, the momo crowd is not going to think ahead, and they will likely buy extremely aggressively, which will lead to a short term rip roaring rally.  As a heads up, our plan will be to take advantage of the rally with tactical trades first and sell when such a rally starts showing exhaustion.
• On the other hand, if President Trump holds his nerve, in our analysis, after short term pain, a golden age will dawn for the U.S. economy and the stock market. In such a scenario, our call will be:
  • More strategic investments in the U.S.
  • Fewer tactical trades
  • Smaller allocation to safe havens
  • Smaller allocation to international investments
• As powerful as President Xi is, he also has his weak points – rising debt, low consumer confidence, and 20 million people working in factors that primarily export to the U.S.
• The Treasury auction yesterday was mixed.  Here are the results:
  • $70B 5-year Treasury note auction results
  • High yield: 3.995% (When-Issued: 4.005%)
  • Bid-to-cover: 2.41
  • Indirect bid: 64.0%
  • Direct bid: 24.8%
• Initial jobless claims came at 222K vs. 220K consensus.
• Durable goods is a very volatile series.  In our analysis, the just released durable goods data is skewed by a 139% increase in non-defense aircraft parts and orders.  Here are the details:
  • Durable goods came at 9.2% vs. 1.5% consensus.
  • Durable goods ex-transportation came at 0.0% vs. 0.3% consensus.

Magnificent Seven Money Flows

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

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

In the early trade, money flows are negative in Apple Inc (AAPL) and Tesla Inc (TSLA).

In the early trade, money flows are positive 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

Bitcoin is range bound.

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.