To gain an edge, this is what you need to know today.
Extraordinary Behavior
Please click here for an enlarged chart of the dollar index (DXY).
Note the following:
- The chart also shows SPDR Gold Trust (GLD), Japanese currency yen ETF Invesco CurrencyShares Japanese Yen Trust (FXY), SPDR S&P 500 ETF Trust (SPY), and JPMorgan Chase & Co (JPM).
- The chart shows that the dollar index has fallen below the psychologically important level of 100.
- Unlike stocks, the dollar normally does not move as much as it has recently as shown on the chart. This move in the dollar is extraordinary.
- The chart shows the move in SPY when President Trump paused reciprocal tariffs. It was one of the strongest moves ever. U.S. investors loved the pausing of the tariffs.
- The chart shows that as the dust settled, foreigners dumped the dollar and bought gold and yen. As full disclosure, yen ETF FXY and gold ETF GLD are in The Arora Report’s ZYX Allocation Model Portfolios.
- We previously shared with you that foreigners were not only selling the dollar but also selling U.S. Treasuries. From yesterday’s Morning Capsule:
In our analysis, the selling in the dollar and bonds appears to be coming from foreigners.
- Normally in periods of stress, like now, foreigners buy the dollar and U.S. Treasuries. The behavior of foreigners this time is extraordinary. Prudent investors want to know why foreigners are behaving contrary to the way they have historically behaved.
- Change has unintended consequences. Little did anyone know that when President Trump paused tariffs, foreigners would start dumping the dollar.
- In our analysis, there are two reasons why foreigners are dumping the dollar and U.S. Treasuries.
- The quick reversal on tariffs sent an unintended message to foreigners that the U.S. is unreliable.
- Irrespective of the public reasons given for the quick reversal, foreigners were not fooled. They quickly understood that the reason for the reversal was Treasury yields spiraling out of control. We previously wrote:
In our analysis, the foregoing played a role, but the real reason for the tariff reversal was likely the rise in bond yields.
- In our analysis, the tariff reversal has now exposed President Trump’s pain threshold to foreign leaders. Foreign leaders will take advantage of this knowledge by taking a tougher stand in negotiations with the U.S. on trade.
- In general, a weaker dollar helps the stock market because it helps earnings of multinationals. A majority of the companies in the S&P 500 are multinationals. Having said that, in our analysis, concern is mounting about the dollar drop. The hallmark of a strong country is a strong currency. In our analysis, those who are cheering the fall in the dollar, such as crypto promoters, are not thinking of the long term future of the U.S.
- Overnight, stock futures were coming under pressure after yesterday’s reversal in SPY shown on the chart. Helping the stock market this morning are earnings from JPMorgan. Earnings from JPMorgan are better than the consensus and whisper numbers. As full disclosure, JPM is long from $34.14 in The Arora Report’s ZYX Buy Model Portfolio.
- On the flip side, JPMorgan’s CEO Jamie Dimon is observing that geopolitics is causing turbulence.
- China has increased tariffs on U.S. goods to 125% in response to President Trump raising tariffs on Chinese goods.
- The just released Producer Price Index (PPI) shows inflation at the producer level falling. In our analysis, this data is likely anomalous and driven by mechanics related to stockpiling of goods ahead of tariffs. Here are the details:
- Headline PPI came at -0.4% vs. 0.1% consensus.
- Core PPI came at -0.1% vs. 0.3% consensus.
- University of Michigan consumer sentiment will be released at 10am ET and may be market moving.
- If foreigners continue to dump the dollar, as a heads up, the protection band will need to be raised. Consider buying new positions only with great moderation, unless there is a specific post. There is also too much risk in short selling – all President Trump has to do is send a tweet and the market can soar.
- Prudent investors also need to keep in mind that the best opportunities occur during uncertain times. For example, The Arora Report gave a signal on March 9, 2009 to back up the truck and buy stocks. That signal was given at the most uncertain time when Wall Street was giving sell signals. Hindsight shows that March 9, 2009 was the exact date when the decade long bull market started.
- On April 8, 2025, when most analysts were claiming that a capitulation had occurred, we shared with you that in our analysis a capitulation had not occurred.
- The worst mistake investors can make is to not stay engaged during this turbulent time. For example, many investors had become disengaged and bought stocks at the low on March 9, 2009. Many investors regretted disengaging and missing out on a tremendous opportunity.
Magnificent Seven Money Flows
In the early trade, money flows are positive in NVIDIA Corp (NVDA), Microsoft Corp (MSFT), and Alphabet Inc Class C (GOOG).
In the early trade, money flows are negative in Apple Inc (AAPL), Amazon.com, Inc. (AMZN), Meta Platforms Inc ( META), and Tesla Inc (TSLA).
In the early trade, money flows are mixed 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 promoters are celebrating the fall in the dollar and urging their followers to buy bitcoin, giving the dollar’s fall as the reason.
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.
More Insights From The Arora Report:
- Here Is How To Look Ahead In This Market, China Dashes Stock Market Bulls Hopium, Bond Canary Sick
- Protection Band Is The Answer For Investors – Wall Street Abandons Trump But Trump Appears Resolute
- Tariffs Will Provide Great Buying Opportunity In Long Term – Investors Must First Cross Stagflation Chasm
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.
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