Short Squeeze

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

Note the following:

• The chart shows gold rocketed in a vicious short squeeze.
• The chart shows when FOMC released its statement and left interest rates unchanged.
• The chart shows when Fed Chair Powell spoke.
• Wall Street was positioned for gold to pull back if Fed Chair Powell was hawkish.  In the press conference, Fed Chair Powell was decidedly hawkish.  Contrary to the prevailing Wall Street wisdom, Fed Chair Powell admitted that the Fed is in the top range of the neutral rate. 
• Fed Chair Powell's statement encouraged short sellers to push the pedal on the short side on gold to add to their existing short positions on gold.
• Wall Street and short sellers were proven right about what Fed Chair Powell would say but wrong about the reaction function.
• One of the reasons predicting markets is so much harder than other professions is the reaction function is unpredictable.  In this case, short sellers were right about the event, but it turned out they were wrong about the reaction in gold.
• In our analysis, the reason behind the short squeeze in gold is Wall Street's positioning.
• While we are very active in short selling, we did not give a short-term trade for short selling gold when that was the popular trade going into the Fed announcement and Fed Chair Powell's press conference. This is because we saw Wall Street's positioning in the short term was massively short, and as such, there was a high probability of a short squeeze.
• President Trump says a ‘massive armada' has reached the Middle East.  President Trump is telling Iran time is running out to make a deal.  Iran is threatening to retaliate.  In our analysis, given the sophistication of U.S. weapons as demonstrated in Venezuela, it is not clear if Iran has the capability to retaliate.  Further, in our analysis, the Strait of Hormuz is a choke point in oil trade. The conventional wisdom is that Iran is capable of choking the strait.
• In our analysis, Iran is producing about 2M barrels per day of oil in spite of heavy sanctions.  The reason is that neither President Biden nor President Trump have enforced the sanctions.  Both have been fixated on keeping gas prices low in the U.S. and thus have ignored massive exports of Iranian oil to China in violation of the sanctions.   
• Brent crude is hitting $70.  As a reference, brent was trading at $59 only recently.
• Chinese speculators have gone manic after copper.  Copper has traded above $14,000 per ton.  As full disclosure, we currently hold positions tied to copper – The copper ETF United States Copper Index Fund (NYSE:CPER). We also hold positions in major copper producers Freeport-McMoRan Inc (NYSE:FCX) and First Quantum Minerals Ltd (OTCPK:FQVLF) as a special situation position.
• Meta Platforms Inc (NASDAQ:META) stock is rocketing after earnings.  Meta has demonstrated it is making profits from using AI for advertising.  As full disclosure, we have given a signal to take profits on the META trade around position.
• Microsoft Corp (NASDAQ:MSFT) reported solid earnings, but MSFT stock is down as Wall Street is myopically focused on Azure growth coming at 39% vs. 40%.
• Tesla Inc (NASDAQ:TSLA) reported a first-ever decline in revenue, but TSLA stock is no longer about cars.  Tesla is now all about robotaxis and humanoid robots.
• Initial jobless claims came at 209K vs. 205K consensus.
• Producer Price Index (PPI) will be released tomorrow at 8:30am ET.

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 Inc (NASDAQ:AAPL), Alphabet Inc Class C (NASDAQ:GOOG), Meta (META), and Tesla (TSLA).

In the early trade, money flows are neutral in NVIDIA Corp (NASDAQ:NVDA).

In the early trade, money flows are negative in Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft (MSFT).

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