Deploy Cash And Reduce Hedges – Inflation Below Expectations

Author: The Arora Report | November 14, 2023 12:41pm

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

Deploy Cash And Reduce Hedges

The trigger for the call to deploy cash and reduce hedges is two-fold:

Market mechanics of year end chase. This market mechanic results in money managers aggressively buying stocks even if their opinion of the stock market is bearish.
Lower than expected CPI.

Please scroll down to the Protection Band And What To Do Now section for the changes. The changes should be made in small tranches, especially if the stock market pulls back after this morning’s spike up.

CPI

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

Note the following:

The chart shows that the stock market is ripping higher this morning on better than expected CPI.
The chart shows that the next target is the mini resistance zone.
The chart shows when hedges were reduced previously. The prior call was to deploy more cash. Now, there is a new call to deploy more cash and reduce hedges further.
RSI on the chart shows that the market is overbought. If the market pulls back due to overbought conditions, the pullback should be used to deploy more cash and reduce hedges.
CPI came better than expected. Here are the details:
- Headline CPI came at 0.0% vs. 0.1% consensus.
- Core CPI came at 0.2% vs. 0.3% consensus.
Home Depot Inc (NYSE:HD) earnings have broader implications. Home Depot is also in the Dow Jones Industrial Average (NYSE:DJIA). Home Depot reported earnings slightly better than the consensus. Prudent investors should note that Home Depot expects fiscal year earnings to be down 9% - 11% and same store sales to drop by 3% - 4%. In spite of this negative data, HD stock is being aggressively bought this morning on earnings.
As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the protection band.

Magnificent Seven Money Flows

In the early trade, money flows are positive in 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).

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust and Invesco QQQ Trust Series 1 (NASDAQ:QQQ).

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is 🔒 stocks in the early trade. To see the locked content, please click here to start a free trial.

Gold

The momo crowd is buying gold in the early trade. Smart money is 🔒 gold in the early trade.

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

The most popular ETF for gold is SPDR Gold Trust (NYSE:GLD). The most popular ETF for silver is iShares Silver Trust (NYSE:SLV).

Oil

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

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF (NYSE:USO).

Bitcoin

Bitcoin (CRYPTO: BTC) is range bound.

Markets

Our very, very short-term early stock market indicator is 🔒. 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 🔒 in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. 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 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.

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