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

Speculative Fever Builds

Please click here for a chart of SPDR S&P 500 ETF Trust (NYSE:SPY).

Note the following:

• The AI frenzy driven rally in the magnificent seven stocks this year is causing a speculative fever to build. The magnificent seven stocks are Apple Inc (NASDAQ:AAPL), Amazon.com, Inc (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), Meta Platforms Inc (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT), NVIDIA Corp (NASDAQ:NVDA), and Tesla Inc (NASDAQ:TSLA).
• The chart shows that the stock market is consolidating after the formation of an island that was not well developed.  The consolidation is above the top support / resistance zone shown on the chart.
• There are predictions of an over 100 point move in S&P 500 tomorrow after the release of the all important CPI data.
• Momo gurus are laying the groundwork to persuade their followers to buy stocks irrespective of what the real data says tomorrow.
• The resistance zone shown near the top of the chart is the magnet for traders before the year end.
• While the speculative fever is building, the Fed speak is decidedly hawkish.
• Nasdaq is being forced to conduct a special rebalance of Nasdaq 100 before the market open on Monday, July 24.
  • There are only two special rebalances in history – May 2011 and Dec 1998.
    • The reason for the special rebalance is that the magnificent seven stocks are now more than half of the weight of the index.
  • The weight changes are not known at this time.  They will be announced on Friday, July 14.
  • The weight of six out of the seven magnificent stocks is likely to be reduced.  META may not have its weight reduced.
  • This may have a slight negative impact on the magnificent seven stocks.
• There is optimism in Asia on China’s stimulus.  The optimism from Asia is spilling into the U.S. market in the early trade.

China

In yesterday’s Morning Capsule, we wrote:

In The Arora Report analysis to counter deflation, the Chinese government is likely to provide stimulus.  Investors love stimulus as stimulus creates more money.  A part of the stimulus money rushes into the stock markets.

The call has proven spot on.  China is announcing stimulative measures to support the property sector.

Momo Crowd And Smart Money In Stocks

The momo crowd is 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 inactive in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is buying oil in the early trade. Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

Bitcoin

A well known analyst from a large reputable bank is predicting that Bitcoin to United States Dollar (BTC/USD) will reach $50K by the end of 2023 and will be above $100K by the end of 2024.

Markets

Our very, very short-term early stock market indicator is positive.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding 21% – 39% in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 3% – 6%, and short term hedges of 5% – 8%. 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 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 2008 financial crash, the start of a mega bull market in 2009, the COVID crash, the post-COVID bull market, and the 2022 bear market.  Please click here to sign up for a free forever Generate Wealth Newsletter.