ALL INVESTOR EYES ON JACKSON HOLE AND PCE

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By Nigam Arora & Dr. Natasha Arora

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

Jackson Hole

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

Note the following:

  • The chart shows that the market entered the resistance zone and now has pulled back below the resistance zone.
  • RSI on the chart shows that the market is losing short term upside momentum.
  • The chart shows that volume has remained low during the rally.
  • The world’s central banks are gathering at the Jackson Hole symposium.
    • Investors are focused on Jackson Hole with a laser focus on Fed Chair Powell.
    • The backdrop is that momo gurus are doing their best to reinforce the narrative that the Fed is almost done and rate cuts are ahead; Fed officials have been pushing back saying that interest rates need to go higher to bring inflation down to the 2% target.  Momo gurus are countering by vigorously stating that Fed officials do not mean what they are saying.
    • The historic wisdom for investors has been to not fight the Fed.
    • The new wisdom from momo gurus is to fight the Fed.  You may ask what is the reason behind the abrupt switch.  The reason is that for a long time the Fed was pushing the stock market higher.  The momo gurus pushed the wisdom of not fighting the Fed because it helped them to persuade their followers to buy stocks.  Now, the Fed is no longer pushing the market higher but is focused on inflation.  The momo gurus have no choice but to push the new wisdom of fighting the Fed to persuade investors to buy stocks.
    • What Powell says at Jackson Hole along with PCE will be the key to the stock market.
      • The consensus is that Powell will be hawkish and push the message that the Fed needs to fight inflation.
      • The consensus is that momo gurus will respond by saying that the rate hike in September will be the last big rate hike and that is the reason to buy stocks.
  • In our analysis, there is a high probability that September will be the last big hike in interest rates.  However, it does not mean that rate hikes will stop.  Rate hikes will likely continue in 25 basis point increments.  
  • There is a very high probability that the Fed is not about to start cutting rates.  We have previously written about a lesson from the 1970’s when the Fed’s stop and go policy resulted in persistently high inflation.  It is likely that the Fed has learned its lesson and would want lower inflation to persist over several months before cutting rates.
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PCE

PCE has historically been the Fed’s favorite inflation gauge.  However, lately Powell has been emphasizing CPI.  PCE will be released at 8:30am ET Friday.

  • The consensus for the headline is 0.1%.  The prior number was 1.0%.
  • The consensus for Core PCE is 0.3%.  The prior number was 0.6%.
  • Irrespective of what these numbers are, the probability is very high that they will be significantly less than last month.  Expect momo gurus to use this fact to try to push the stock market higher.

China

The People’s Bank of China (PBOC) has cut the five-year loan prime rate by 15 basis points to 4.30% and one-year loan prime rate by 5 basis points to 3.65%.

Real estate developers in China are in trouble.  China is announcing additional steps to help real estate developers.

South Korea

We have previously written that South Korea is worth watching as it may give an early signal of the state of the global economy.

Exports from South Korea were up 3.9% year over year for the first 20 days of August.

Of special note is that semiconductor exports from South Korea went down 7.5% year over year.  Both Samsung and  are located in South Korea.

Semiconductors are a leading sector and often lead the stock market in either direction. This data from South Korea  indicates that the demand for semiconductors may be slowing.

Momo Crowd And Smart Money In Stocks

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

Gold

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

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

Oil

The momo crowd is 🔒 oil in the early trade.  WTI oil is trading at $88.87 as of this writing.  You may recall that the momo crowd was aggressively buying oil when it was hitting $130; at that time smart money was selling oil and The Arora Report gave a signal to short sell oil.

The momo crowd continued to buy oil until recently. Then the pain of unrealized losses became too big and forced the momo crowd to start selling oil.

The Arora Report in ZYX Short recently gave a signal to book very nice profits on the short oil trade.

Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is stabilizing near $21,000 after pulling back.

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 $1741, silver futures are at $18.62, and oil futures are $88.87.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.

 futures are down 345 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 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.

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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.

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This post was just published on ZYX Buy Change Alert.

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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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