Momo Crowd Buys Stocks Believing Iran Is A Paper Tiger, Russia Talks Nuclear Warheads For Iran

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

Momo Crowd Buys Shallow Dip

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 the stock market reaction to the U.S. bombing Iran is muted.
• RSI on the chart shows the stock market is neither overbought nor oversold and can go in either direction.
• On Sunday evening when stock futures opened, they opened lower about 1%.  The momo crowd immediately bounced to buy the shallow dip.  The momo crowd has continued to buy stocks as of this writing.
• There is no smart money buying as of this writing in the premarket.  Presumably, the reason is smart money wants to know how Iran will respond.  In contrast, the momo crowd has already concluded that Iran is a paper tiger.
• Iran has many options.  It will be total arrogance for anyone to believe they know how Iran is going to react.  Prudent investors should start from our Second Law of Investing and Trading, which states "Nobody knows with certainty what is going to happen next in the markets," and our Third Law, which states "Making investing and trading decision based on probabilities is the only realistic and profitable approach."
• The highest probability scenario continues to be what we shared with you on June 17:

This morning, at a time when selling is taking place in stocks on heightened concern about the Israel Iran war, in our analysis, the highest probability scenario is Iran capitulation on its ambitions to build a nuclear weapon.  If this highest probability scenario comes true, investors should look ahead to the following:

• “Israeli stocks will go up.  There is a new buy signal on Israel ETF EIS in ZYX Allocation.
• Defense stocks will go down.
• Oil stocks will go down
• Oil will go down.
• Such a development will be negative for gold but expect central banks to buy the dip.
• Such a development will be negative for silver.  Our likely call will be to start a trade around position in silver.
• Such a development will be negative for the Chinese stock market.
• Such a development will be negative for Russia.
• Such a development will be negative for U.S. Treasuries. 
• Such a development will be positive for the Taiwanese stock market.
• Such a development will be positive for the U.S. stock market.
• Such a development will be positive for the Indian stock market.
• Such a development will be positive for European stock markets.
• Such a development will be positive for the U.S. dollar.”
• There is no value to be added by regurgitating everything that is in mainstream media. Prudent investors should pay attention to a statement coming from Russia that the media has ignored.  Deputy Chairman of the Security Council of Russia Dmitry Medvedev said, "A number of countries are ready to directly supply Iran with their own nuclear warheads."   In our analysis, the only four countries that are even plausible are Russia, North Korea, China, and Pakistan.  
• Prudent investors should also pay attention to the fact that it appears 400kg of Iran's enriched uranium is missing.  This is enough to make ten nuclear bombs.  It is likely that Iran moved this uranium to a secure secret location before the attacks.  
• Investors should think in different time frames.  Even if Iran does not respond vigorously, in the short term, Iran may secretly build a nuclear weapon over the next year, unless there is a regime change.  
• Prudent investors should also note that Iran's parliament has passed a resolution calling for the blockage of the Strait of Hormuz.  About 25% of the world's oil is transported through the Strait of Hormuz.

Magnificent Seven Money Flows

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

In the early trade, money flows are neutral in Microsoft Corp (MSFT)and Alphabet Inc Class C (GOOG).

In the early trade, money flows are negative in NVIDIA Corp (NVDA).

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 seeing selling on Iran risk.  The price action in bitcoin goes against the narrative of bitcoin promoters that bitcoin is a hedge against geopolitics.

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.