Investors Double Down On Taco Trade After Tariff Invalidation; A Tell From Nvidia; Mass Layoffs

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

Tariff Invalidation

Please click here for an enlarged chart of SPDR S&P 500 ETF Trust SPY which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The chart shows a big move up in the early trade after the U.S. Court Of International Trade struck down tariffs imposed by President Trump under the 1977 International Emergency Economic Powers Act.
• The move up shown on the chart is due to investors doubling down on the TACO (Trump Always Chickens Out) trade.
• Almost all of the buying shown on the chart is coming from the momo crowd, not from smart money.
• Zone 1 (resistance) shown on the chart is the magnet for traders.
• As a reader of our report, you are ahead of the curve. It is time to also get ahead of the TACO trade. In our analysis, President Trump has several alternatives. Investors who are counting President Trump out on tariffs and believing that President Trump will now completely back down are making a big mistake. To stay ahead of the curve, here are the key points you need to know:
  • An injunction on tariffs is effective immediately, but the court has given the administration 10 days to implement it.
  • Expect the administration to appeal to lift the injunction.
  • If the appeal is not successful, expect President Trump to take the matter to the Supreme Court. The probability is high that the Supreme Court will rule in President Trump's favor.
  • Using Section 122 of the Trade Act 1974, President Trump can impose tariffs up to 15% for up to 150 days. Such new tariffs can replace the existing 10% universal tariffs. Section 122 can be implemented quickly without any formalities. President Trump can use section 122 while an appeal is pending.
  • President Trump can also use Section 338 to impose tariffs up to 50% on grounds that certain countries discriminate against the U.S.
  • The court ruling leaves sectoral tariffs such as those on steel and aluminum in place. President Trump can simply use Section 232 to impose sectoral tariffs by expanding the list of sectors to almost every sector.
• The reaction to NVIDIA Corp NVDA earnings is providing an important tell for investors.
  • Nvidia reported earnings inline with the whisper numbers. Whisper numbers are the numbers analysts share privately only with their best clients. Whisper numbers are often different from the numbers analysts publish for public consumption. This is how analysts generate business.
  • Whisper numbers had moved slightly higher than consensus numbers going into earnings.
  • Stocks move based on the difference between whisper numbers and actual reported numbers.
  • Since Nvidia reported inline with whisper numbers, based on historical patterns, NVDA stock should not have moved a lot.
  • For our readers, the reaction to Nvidia earnings provides an important tell to get ahead of the curve. NVDA stock is up 5.38% as of this writing in the premarket, instead of only the 1-2% move that is warranted based on earnings.
    • Buying is coming mostly from the momo crowd and not from smart money. The momo crowd is in the mode of buying everything that has news, good or bad.
    • The momo crowd is aggressively buying because, right now, they are driven by FOMO (Fear Of Missing Out).
  • Prudent investors can get ahead of the curve by understanding that the foregoing behavior is a tell of extremely bullish sentiment. Remember that extremely bullish sentiment is a contrary indicator. In plain English, it is a sell signal. It is worth repeating, sentiment is not a precise timing indicator.
• Initial jobless claims came at 240K vs. 230K consensus. This is an indication that employment may have begun weakening.
• GDP is a lagging indicator, but nonetheless important because the market pays attention to it. We focus on leading indicators in ten categories. Here are the details of the data:
  • Q1 GDP Second Estimate came at -0.2% vs. -0.3% consensus.
  • Q1 GDP Deflator Second Estimate came at 3.7% vs. 3.7% consensus.

Mass Layoffs Ahead Due To AI

We have previously shared with you that AI would bring mass layoffs. Now, the CEO of Antropic, a major large language model builder is echoing the same.

Here are the key points you need to know:

• AI will write almost all software code within a year.
• The impact on lower level white collar jobs will be devastating as such jobs will be automated. AI will be doing one half of today's entry level white collar jobs.
• Unemployment could rise to 20%.
• A vast majority of people who will be laid off are totally oblivious and have no idea what is about to hit them.

In our analysis, the AI impact on employment will have a major impact on the markets. Many investors will lose their shirts, but prudent investors who are ahead of the curve will have opportunities to make a fortune. This underscores the importance of staying ahead of the curve.

Magnificent Seven Money Flows

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

Oil

API crude inventories came at a draw of 4.236M barrels vs. a consensus of a build of 1M barrels. This data is bearish.

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.