Buy CANE, Sell INGR On Coca-Cola Switching To Real Sugar, A Tell For Stock Market From Trump-Powell Drama

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

A Tell For Stock Market

Please click here for an enlarged 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 how the important Trump-Powell drama played out and provides a valuable tell for the stock market.
• The chart shows when the news broke that President Trump had written a draft letter firing Fed Chair Powell and had shown the letter to Republican lawmakers.
• The chart shows that the stock market immediately tumbled.
• The chart shows when President Trump backtracked.
• The chart shows that when President Trump backtracked, the stock market immediately moved up.
• President Trump stated, "I don't rule anything out, but I think it's highly unlikely, unless he has to leave for fraud." Adding to the possibility, Trump said, "It's possible there's fraud involved."  In our analysis, President Trump is trying to use the cost overrun in Fed building renovations as an excuse. President Trump has not been a fan of Powell, sharing, "He's a terrible Fed chief. I was surprised he was appointed."  Prudent investors remember that President Trump is the one who initially appointed Fed Chair Powell and was later nominated for a second term by President Biden.
• There are the important tells from the chart:
  
  • The VUD indicator, the most sensitive measure of supply and demand in real time, did not turn orange even when the stock market was rapidly dropping.  Orange indicates a net supply of stocks, and green indicates a net demand for stocks.
  • For the rest of the day, the VUD indicator stayed mostly green, indicating net demand for stocks.
  • The price action on the chart shows that subsequent to President Trump's denial, the market went higher compared to where it was when the news broke of President Trump's draft letter firing Fed Chair Powell.
  • The sum total of the foregoing is that overall, the prospect of Fed Chair Powell being fired and the Fed losing its independence did not concern the stock market.
  • If it was not for the extreme bullishness in the stock market right now and dominance of the momo crowd, the stock market would have continued to go down even after President Trump's denial.  The reason is rather simple – in all developed countries, central banks are independent; only in the third world countries do presidents fire central bank chiefs and have central banks do presidents’ bidding.  Prudent investors should note a Fed Chair has never been fired in U.S. history.
• In our analysis, here are the reasons behind the stock market's response:
  
  • The momo crowd aggressively bought the dip.  The momo crowd does not do deep analysis and does not understand the implications.  The momo crowd simply has stars in their eyes and buys every time the stock market dips.
  • Smart money is split.  Smart money recognizes President Trump firing Fed Chair Powell will be a big negative in the long term but in the short term a new Trump appointee will significantly lower interest rates and drive the stock market higher.
  • In our analysis, in the past, Fed Chair Powell enjoyed great support from both Republicans and Democrats.  However, now Powell is losing support from both Democrats and Republicans.  The reason is that Washington has now become a totally polarized place.  Powell tries to stay politically neutral although President Trump accuses him of being political and previously helping out President Biden.  In Washington, there is no place for a person who is trying to do a good job without being influenced by politics.
  • In our analysis, as damaging as it would be for the U.S. Federal Reserve to become similar to the central banks in third world countries, there is merit to President Trump's idea of a golden age.  As AI becomes more pervasive, the economy will become more efficient and as such lower interest rates may be in order.
• President Trump appears to have persuaded Coca-Cola Co (KO) to use real sugar for drinks sold in the United States.  This is a big change, as long ago both food and beverage industries mostly switched over from real sugar to high-fructose corn syrup.  The reason is that high-fructose corn syrup is cheaper than sugar.  Prudent investors should note an increase in sugar demand will require more sugar imports.  A change is happening here and investors need to get ahead of the change.  This may turn out to be stage 1 of a high alpha generating moment.  Please click here to see the five stages of a long trade, and please click here to see the five stages of a short trade.
• As full disclosure, on the Coca-Cola news, so far we gave three signals.
  
  • We have given a signal to buy the sugar ETF Teucrium Sugar Fund (CANE).  The signal is in our ZYX Allocation.
  • We have given a signal to short sell Ingredion Inc (INGR).  INGR is a major high-fructose corn syrup producer.
  • A call was made to take profits on the agricultural products company Archer-Daniels-Midland Co (ADM).  ADM is a producer of high-fructose corn syrup.  When the signal was given, ADM was trading at $53.62.  Later on in the aftermarket, ADM fell as low as $49.50 but has since then recovered to $52.25 as of this writing.
  • More signals will be coming.
• Taiwan Semicndctr Mnufctrng Co Ltd (TSM) reported earnings better than the consensus and the whisper numbers.  TSM earnings are important for two reasons:
  
  • TSM manufactures advanced AI chips for NVIDIA Corp (NVDA) and Advanced Micro Devices Inc (AMD).  TSM also manufactures chips for Apple Inc (AAPL) iPhones.
  • Good earnings from TSM come right after lower projections from the most important semiconductor manufacturing company ASML Holding NV (ASML).  Please see yesterday's Morning Capsule.
• Initial jobless claims came at 221K vs. 230K consensus.  This indicates that the jobs picture remains strong, at least for the time being.
• Among important earnings, Netflix Inc (NFLX) and Interactive Brokers Group, Inc. (IBKR) will report earnings after the close.

Magnificent Seven Money Flows

In the early trade, money flows are positive in  Apple (AAPL), Amazon.com, Inc. (AMZN), Meta Platforms Inc (META), Nvidia (NVDA), Microsoft Corp (MSFT), and Tesla (TSLA).

In the early trade, money flows are negative in Alphabet Inc Class C (GOOG).

In the early trade, money flows are positive 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.

Arora Protection Band And What To Do Now

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