Bullish Technical Signal, Santa Claus Rally, Taking Advantage Of Hopium

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

Profiting From Stock Market Hopium

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 Friday was an outside day.  It is a bullish technical signal.
• The chart shows that the stock market hit the breakout line before bouncing.
• The chart shows that RSI is close to oversold.
• The set up shown on the chart is a good setup for a Santa Claus rally.
• The chart shows the higher volume on Friday.  This indicates conviction.
• In the early trade, initially there was strong buying.  As of this writing in the premarket, selling is coming in.
• Momo gurus have a new narrative – after lower PCE data, the Fed will continue cutting rates.  Momo gurus are urging their followers to ignore everything the FOMC said and everything Powell said in his press conference.
• In The Arora Report analysis, in spite of bullish technical signals and bullish seasonality, investors should not ignore negative macro signals that arose from the FOMC decision and many investors in the stock market finally coming to the realization that the data does not support aggressive rate cuts.
• Right now, the stock market is running up on hopium.  Once Trump is inaugurated, the stock market will have to meet reality.
• The Arora Report call is to consider taking partial profits on tactical positions between Christmas and New Years.  Investors should be prepared to take more profits on tactical positions between New Year and Trump’s inauguration.  Open new tactical positions on dips and on new signals.
• The Arora Report call is to continue to hold good strategic positions.
• There is no change in the protection band.  Please see details in the “Protection Band And What To Do Now” section below.  For investors who are underinvested relative to the protection band and are aggressive, consider scaling in on strategic positions when they fall in the buy zones.
• In The Arora Report analysis, the ideal time to buy will be if there is a 6% – 10% correction.
• Since Trump’s election, across all services from The Arora Report, there have been 84 profit taking signals.  This illustrates the power of combining tactical positions with taking partial profits on some strategic positions. Please see the Trade Management Guidelines for how to properly take partial profits.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Alphabet Inc Class C, Meta Platforms Inc, NVIDIA Corp, and Tesla Inc.

In the early trade, money flows are neutral in Amazon.com, Inc., Microsoft Corp and Apple Inc.

In the early trade, money flows are neutral 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.

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.