WEEKLY STOCK MARKET DIGEST: SMART MONEY ACTING AS INFLATION HITS A 40 YEAR HIGH

By Nigam Arora & Dr. Natasha Arora

Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report

Please scroll down for the section ‘Protection Bands and What To Do Now.’

EARNINGS SEASON BEGINS – ANALYSTS UNDERESTIMATING EXPENSES

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

Earnings Season

Please click here for a chart of  S&P 500 ETF () which represents the benchmark stock market index S&P 500 ().

Note the following:

  • The chart compares  to  100 ETF , bank ETF , and popular long duration momo ETF .
  • The chart shows that in 2022  has underperformed  by 25.45% in a short time. The biggest holding of ARKK is . If it was not for , the underperformance would have been much worse.  From the reports we are seeing, momo portfolios are typically down 30 – 80% since the start of the new year.  Many momo accounts focus on options. Those mostly focused on options are down 80%.  We are receiving a large number of questions on long durations stocks.  In terms of both risks and opportunities here.  There is extensive discussion to help you better understand long duration stocks in a podcast titled “Be Careful with Popular Long Duration Stocks.”
  • The chart is especially relevant today because earnings season has started.
  • After the Fed policy, earnings are the single best determinant of stock prices in the long term.
  • The three big banks , and  have reported earnings.
  • So far the earnings have been better than consensus but below the whisper numbers. Analysts and the momo crowd have been ratcheting up whisper numbers.  and  are being sold on disappointment of earnings below the whisper numbers.   has lost most of its pre market gains as of this writing.
  • In our analysis of the three banks’ earnings reports, analysts have been underestimating expenses. 
  • Investors should note that the whisper numbers, in general, are significantly higher than the consensus numbers as earnings season starts.  Often, this is not a good setup because investors are disappointed when companies are not able to meet high whisper numbers.
  • In general, we like a setup when whisper numbers are below the consensus.

Retail Sales

  • The U.S. economy is 70% consumer based.  Therefore, we pay a lot of attention to retail sales.
  • The consumer has been very strong because of the free money and lately, the extra child care tax credit.  Upper income consumers were also buying goods more than normal because they were not spending money on travel and restaurants.
  • Now the flow of free money has stopped, and it is reflecting in the retail sales.
  • Retail sales came at -1.9% vs. 0.0% consensus.
  • Retail sales ex-auto came at -2.3% vs. 0.2% consensus.  We exclude autos from our analysis because autos are very volatile and hinder analysis.
  • Retail sales data is a preliminary indication of how much the bubble has been inflated by government borrowing and free money.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks in the early trade.  Smart money was 🔒.

Gold

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒.

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  This is Friday.  A Friday often leads to short squeezes that push the market higher.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down, and bonds are ticking up.

The dollar is stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1825, silver futures are at $23.04, and oil futures are $82.66.

S&P 500 futures resistance levels are 4713, 4770, and 4826: support levels are 4600, 4460, and 4400.

 futures are down 256 points.

Protection Bands and What To Do Now?

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

Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or short-term bond funds or allocated to short-term tactical trades, and short to medium-term hedges of 🔒, and short term hedges of 🔒. 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.

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.

SCARY HEADLINE FOR INVESTORS BUT DATA IS ACTUALLY GETTING BETTER

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

Producer Price Index

Please click here for a chart of Producer Price Index.

Note the following:

  • The scary headline is that inflation at producer level increased at the highest rate ever since the Labor Department started compiling the data in 2010. However, the reality is that the data is getting better for investors and the economy.
    • PPI rose 9.7% year-over-year.
    • Core PPI rose 8.3% year-over-year.
    • The chart shows that the data is actually getting better as inflation is coming down at the producer level.
    • The chart shows that PPI came at 0.2% vs. 0.4% consensus month-over-month. It was at 0.8% for the prior month as shown on the chart.
    • The chart shows that Core PPI came at 0.5% vs. 0.4% consensus month-over-month.  It was 0.7% for the prior month as shown on the chart.
  • Significant buying is coming in after the release of the PPI data.
  • In our analysis, the drop in PPI in December was mostly due to a dip in oil prices at the end of November.  In December and January, oil prices have gone up.  If oil prices stay this high, PPI may move up again for the month of January.

Jobless Claims

Initial claims came at 230K versus 202K consensus.  This is the highest number since mid-November.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒.

Gold

The momo crowd is 🔒 gold  in the early trade.  Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

EIA sees oil prices dropping in 2022 and 2023.  Momo crowd is dismissing the EIA report.  Prudent investors should pay attention to the EIA report because it is authoritative and often correct.

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒.

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking up, and bonds are ticking down.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1822, silver futures are at $23.23, and oil futures are $92.43.

S&P 500 futures resistance levels are 4770, 4826, and 4900: support levels are 4713, 4600, and 4460.

 futures are up 128 points.

MOMO BUYS ON INFLATION AT THE HIGHEST LEVEL IN 40 YEARS

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

Inflation Highest In 40 Years

Please click here for a chart of S&P 500 ETF () which represents the benchmark stock market index S&P 500 ().

Note the following:

  • Inflation is running at the highest level since 1982.
    • CPI came at 7.0% year-over-year.  This is the highest number since 1982.
    • Core CPI came at 5.5% year-over-year.
    • CPI came at 0.6% vs. 0.5% consensus month-over-month.
    • Core CPI came at 0.6% vs. 0.5% consensus month-over-month.
  • The chart shows that the momo crowd bought stocks aggressively going into the release of the number. This indicates that the momo crowd is in the mode of not caring about the risk. Smart money typically does not buy ahead of a major number because of the risk.
  • The chart shows that the momo crowd is buying stocks aggressively after the release of bad inflation data.
  • The narrative from momo gurus to persuade the momo crowd to keep buying is threefold.
    • The Fed will succeed at taming inflation without significantly tightening the monetary policy.
    • Inflation will come down on its own.
    • Inflation is good for stocks.
  • The foregoing indicates that greed has completely taken over and there is no fear.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒.

Gold

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

API data came at a draw of 1.077M barrels vs. 1.95M barrels consensus.

Of note is that API reported a large build of gasoline inventories at 10.86M barrels.

The foregoing data is bearish for oil.  However, the data is being eclipsed by positive sentiment.

The momo crowd is 🔒 oil.  Smart money is🔒.

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down, and bonds are ticking up.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1821, silver futures are at $22.94, and oil futures are $81.93.

S&P 500 futures resistance levels are 4770, 4826, and 4900: support levels are 4713, 4600, and 4460.

 futures are up 114 points.

POWELL TESTIMONY AHEAD – STOCK BULLS EXCITED ABOUT THE TECHNICAL PATTERN

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

Powell Testimony And Bulls Excited

Please click here for a chart of  Nasdaq 100 ETF ().

Note the following:

  • Powell is set to testify in front of the Senate.
  • The prepared text of Powell’s speech has been released.
    • Powell acknowledges that high inflation exacts a toll.
    • The Fed will use its tools to prevent inflation from becoming entrenched.
  • Powell will be asked tough questions. Will he answer them or will he evade them by saying that it is data dependent?
  • Powell’s answers will determine which way the market goes from here.  This is especially important for popular long duration stocks and ETFs.  For those desiring next-level information, the podcast on popular long duration stocks is now live.
  • In yesterday’s Morning Capsule we wrote

Often a short term sharp rally starts when the momo crowd starts selling.

The chart shows that RSI is very oversold.  When RSI is this oversold, a rally often starts.

  • Our very very short term indicator was positive yesterday when the market was in the middle of a major sell off.
  • The chart shows that after stops were hunted, buying came in as expected and a sharp rally ensued.
  • The chart shows that RSI turned up.
  • The chart shows that  is now approaching the top band of the prior support zone.
  • Overall, this is a positive technical pattern.  Many bulls are contending that the bottom is in.  Before you get excited, some historical perspective is important.
    • QQQ has traded down more than 2.5% intraday but finished positive 15 times since 2003.  However, this pattern happened 46 times in the period of 1999 – 2002.  QQQ crashed in 2000.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒.

Gold

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒.

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates and bonds are range bound.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1801, silver futures are at $22.52, and oil futures are at $80.02.

S&P 500 futures resistance levels are 4713, 4770, and 4826: support levels are 4600, 4460, and 4400.

 futures are up/down points.

INVESTORS AWAIT INFLATION DATA

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

Boogeyman

Please click here for a chart of  Nasdaq 100 ETF ().

Note the following:

  • The current boogeyman is inflation.
  • Investors are eagerly awaiting inflation data. CPI will be released on Wednesday, and PPI will be released on Thursday.
  • The consensus for CPI is 0.4% and for Core CPI 0.5%.
  • The consensus for both PPI and Core PPI is 0.4%.
  • After aggressively buying the dip last week, over the weekend a trace of fear entered the momo crowd.
  • Often a short term sharp rally starts when the momo crowd starts selling.
  • This morning the momo crowd is selling stocks. The chart shows that due to momo crowd selling in the early trade  has slipped below the bottom band of the support zone.
  • Stops are below the bottom band of the support zone.  If there is no negative news, there is a fair probability of stops being taken out first in a market down draft.
  • The chart shows that RSI is very oversold.  When RSI is this oversold, a rally often starts.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 in the early trade.  Smart money is 🔒.

Gold

The momo crowd is 🔒gold in the early trade.  Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒oil in the early trade.  Smart money is 🔒.

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking up, and bonds are ticking down.

The dollar is stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1796, silver futures are at $22.40, and oil futures are $78.53.

S&P 500 futures resistance levels are 4713, 4770, and 4826: support levels are 4600, 4460, and 4400.

 futures are down 69 points.

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Nigam Arora

Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.

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