Prudence requires that stock market bulls take protective measures as Special Counsel Robert Mueller investigates President Trump’s financial dealings, crossing a “red line” the president said he wouldn’t allow.

Politics has the power to throttle stocks. On Dec. 1, when it was announced that former national security adviser Michael Flynn was charged with lying to the FBI, the Dow Jones Industrial Average DJIA, +0.04% fell as much as 350 points.

Let’s discuss Trump’s red line and what it could potentially mean. Here are two charts, one short-term and one long-term.

Two charts

Please click here for an annotated chart of technology ETF XLK, -0.85% . The reason it is important to pay attention to this ETF — in addition to broad-based ETFs such as S&P 500 ETF SPY, -0.27% , small-cap ETF IWM, -0.15% and Dow Jones Industrial Average — is because it carries popular stocks. Some of this ETF’s holdings are Apple AAPL, -1.30% , Facebook FB, +0.16% , Google GOOG, -1.24% GOOGL, -1.32% , Nvidia NVDA, -1.11% and Micron Technology MU, +2.18% .

Please note the following from the chart:

• Volume was low during the rally phase in recent days.

• Volume spiked on the first big down day.

• Volume has stayed higher since the first down day.

The foregoing has negative implications.

Please click here for an annotated long-term chart of Nasdaq 100 QQQ, -0.97% . For the sake of complete transparency, this is exactly the same chart without any changes that was published in “Stock investors, enjoy your gains but start protecting your portfolios.” Please click on the link to read important observations from the chart.

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Trump’s red line

Longtime readers know that I am politically neutral. I see my job as exclusively helping investors. I am simply sharing with you the reports that are out there and may affect your investments.

One of the biggest dangers for this stock market is if Trump gets implicated in the Russia investigation or Trump fires Mueller. Trump has previously drawn a red line against the prosecutor meddling in his personal affairs.

Deutsche Bank DB, +0.67% is Trump’s largest lender and has extensive dealings with Russia. Deutsche Bank recently paid over $670 million in fines for irregularities about Russian money laundering totaling $10 billion.

Paul Manafort is a former chairman of Trump’s campaign. Mueller has indicted Manafort, who is accused of laundering money for Russian clients.

There are also reports that Deutsche Bank gave a $285 million loan to Trump’s son-in-law, Jared Kushner, who didn’t disclose the debt.

Finally, there are reports that Mueller has issued a subpoena to Deutsche Bank to force it to disclose documents regarding Trump and his family. To be sure, there is a denial of these reports.

We will have to wait and see how Trump reacts.

What to do now

At The Arora Report, for timing, risk control and allocations, we depend on the highly complex adaptive ZYX Global Multi Asset Allocation Model. In plain English, “adaptive” means it changes itself with market conditions. The model is comprehensive in that it has inputs in 10 categories that truly matter. Investors ought to pay attention to these inputs; you can see details here. We simply leave out other data that do not reliably determine the course of the markets.

The Arora Report timing model went to all cash and then inverse ETFs and short positions during the crash of 2008. This not only protected investors but also made large profits from the market falling during a time when many investors lost half of the value of their portfolios.

The model turned aggressively bullish in February and March of 2009 right at the beginning of the current bull market.

Since then the model has stayed bullish but has often called for hedges. Based on the ZYX Global Multi Asset Allocation model, we answer for our subscribers the key question: “What to do now?” We specify appropriate cash levels and appropriate hedges. Currently the model does not see a crash but advocates protective measures as risks are rising due to overbought conditions of the stock market as well as the dangers of the Russia investigation.

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report.

Nigam Arora is an investor, engineer and nuclear physicist by background, has founded two Inc. 500 fastest-growing companies, is the developer of the adaptive ZYX Global Multi Asset Allocation Model and the ZYX Change Method to profit from change in trading and investing. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.