Yen Surge

Please click here for a chart of gold futures (GC_F).

Note the following:

• The chart shows that gold surged past the magnet like a hot knife through butter.
• The 200 day moving average on the chart shows the gold move is very overextended.
• RSI on the chart shows gold is overbought and vulnerable to a pullback.
• Along with gold, silver is also surging.  Silver is experiencing a significant short squeeze.
• The momo crowd is rushing to buy SPDR Gold Trust (NYSE:GLD), iShares Silver Trust (NYSE:SLV), VanEck Gold Miners ETF (NYSE:GDX), Newmont Corporation (NYSE:NEM), Hecla Mining Co (NYSE:HL), and Global X Silver Miners ETF (NYSE:SIL) like there is no tomorrow.  Smart money is not buying.
• The immediate trigger for the latest surge in gold is the surge in yen.  The yen surged after Japanese and U.S. authorities indicated they were ready to step in to intervene in the markets.  Japan's Prime Minister Takaichi said the government will take steps against speculators.  As a result of the surge in yen, stocks in Japan fell with Nikkei 225 falling 1.8%.
• In our analysis, U.S. authorities have a good reason to help Japan.  Without the U.S.'s help, Japan will sell U.S. Treasuries to finance an intervention.  Japan selling U.S. Treasuries will not be good for the U.S.
• Yields in Japan declined, and Japanese government bonds (JGB) rose.
• As we have been sharing with you, Japan is very important to the U.S. markets due to the carry trade.  In the carry trades, funds have borrowed hundreds of billions of dollars in Japan and invested in U.S. markets.
• The surge in yen is weighing on U.S. stocks, especially tech stocks.  On the other hand, declining yields in Japan are helpful to U.S. stocks.  It is highly nuanced as some funds are hedged against currency moves while some are not.
• President Trump is threatening to impose 100% tariffs on Canada if Canada proceeds with a trade deal with China.  Canada is backing off.  This is bringing in buying after an initial sell off in stocks in the early trade.
• The FOMC meeting will start tomorrow.  The Fed's rate decision will be released on Wednesday at 2pm ET followed by Fed Chair Powell's press conference.  In The Arora Report analysis, there is an 85% probability of no rate cut.
• Key earnings are ahead this week:
  • Among Magnificent Seven earnings, earnings from Apple Inc (NASDAQ:AAPL), Tesla Inc (NASDAQ:TSLA), Microsoft Corp (NASDAQ:MSFT), and Meta Platforms Inc (NASDAQ:META) are ahead this week.
  • Memory and storage stocks have been some of the hottest stocks in the market as AI has significantly increased demand.  The rally will be tested when Western Digital Corp (NASDAQ:WDC) and Seagate Technology Holdings PLC (NASDAQ:STX) report earnings this week.
  • Software stocks have been crushed on AI fears.  Earnings from ServiceNow Inc (NYSE:NOW) will be insightful.
  • While semiconductor stocks that cater to AI have been strong, stocks of companies that produce mainly analog semiconductors have been weak.  Earnings from Texas Instruments Inc (NASDAQ:TXN) will be insightful.  In due course, TXN will be a major beneficiary of humanoid robots.  
• Data center stock CoreWeave Inc (NASDAQ:CRWV) is surging on the news of NVIDIA Corp (NASDAQ:NVDA) investment.  Sympathy buying is also coming into data center stocks IREN Ltd (NASDAQ:IREN) and Nebius Group NV (NASDAQ:NBIS).
• Durable orders data is strong.
  • Durable orders came in at 5.3% vs 1.1% consensus.
  • Durable orders ex-transportation came at 0.5% vs 0.3% consensus.

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  For this reason, it is important to pay attention to early money flows in the Mag 7 stocks on a daily basis. 

In the early trade, money flows are positive in Apple (AAPL) and Meta (META).

In the early trade, money flows are neutral in Amazon (AMZN) and Microsoft (MSFT).

In the early trade, money flows are negative in Alphabet Inc Class C (NASDAQ:GOOG), Nvidia (NVDA), and Tesla (TSLA).

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

Bitcoin

Bitcoin (CRYPTO: BTC) is seeing selling.

What To Do Now

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.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.

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