WEEKLY STOCK MARKET DIGEST: ARORA PORTFOLIOS ARE WELL PROTECTED – BE CAREFUL WITH YOUR INVESTMENTS

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.’

STRONG JOBS REPORT, WAGES MODERATE – MOMO BUYS STOCKS

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

Wages Moderate

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 Jobs Report shows that the employment picture is strong and wages are moderating. Here are the details:
    • Non-farm Private Payrolls came at 406K vs. 390K consensus.
    • Non-farm Payrolls came at 428K vs. 395K consensus.
    • Average Hourly Earnings came at 0.3% vs. 0.4% consensus.
    • The Unemployment Rate came at 3.6% vs. 3.6% consensus.
    • The Average Work Week came at 34.6 vs. 34.7 consensus.
  • The momo crowd started buying going into the Jobs Report and has continued to buy after the release.
  • Smart money sold after the release.
  • The difference between the two groups is that the momo crowd believes the bottom is in and this is the opportunity to buy.   In contrast, smart money is looking ahead at the specter of stagflation.
  • It is very important that investors increase their knowledge of stagflation now so that they can avoid losses and capture opportunities.
  • The chart shows the big rally on the Fed taking 75 bps off the table.
  • The chart shows a dramatic reversal in the stock market on terrible productivity data.  Many investors and talking gurus are missing the point because they have not deeply studied that productivity is a leading indicator. Most gurus are focused on lagging indicators. Further, they are suffering from recency bias when the productivity was going up – they are behind the curve and do not even recognize what the change in productivity means. 
  • Going forward consider carefully watching the productivity data. 
  • The chart shows that the volume on the selloff yesterday was heavier but not at the level of capitulation.
  • Lasting bottoms are formed when the volume increases to the capitulation level.
  • The chart shows that the market is in no-man’s-land in between the support zone and the resistance zone.

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 is 🔒 stocks in the early trade.

Gold

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

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

Oil

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is moving in almost perfect correlation with speculative momo stocks.

Markets

Our very, very short-term early stock market indicator is 🔒. In that case, momo buying will lift the market. If the market starts lifting, a short squeeze can cause a vicious rally. 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 $1877, silver futures are at $22.39, and oil futures are at $109.38.

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

 futures are down 167 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.

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.

 

BE WARY OF CELEBRATING THE FED HIKE WITH THE MOMO CROWD AS HISTORY MAY REPEAT

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

78%  DROP

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:

  • In yesterday’s Morning Capsule we wrote,

The technical set up is for a 5% rally.

  • Subsequently the market rallied.
    • S&P 500 went up 3.05%.
    •  went up 3.38%.
    • Dow Jones Industrial Average went up 2.82%.
  • The momo crowd aggressively bought because Powell took 75 BPS rate hike off the table.
  • This is only the second time in 40 years when a rally of this magnitude has occurred on a Fed rate hike.  
  • The last time it occurred was March 21, 2000, just before the big bear market.
  • In the big bear market of 2000 – 2001,  lost 78%.
  • As the chart shows, the technical set up is now mixed.
    • RSI is on a buy signal. This is a positive.
    • The lows have now been tested four times. During the tests of the lows, the market never reached the lower support zone. This is a positive.
    • On the rally, the volume was not as heavy as bulls would have liked. This is a negative.
    • The market is now in the resistance zone. This is a negative.
    • If it was in isolation, without impact from the macro and fundamental factors, such a set up typically resolves in a shallow pullback followed by another rally leg. However, here both fundamentals and macros are not favorable.  
  • The momo crowd rejoiced that 75 BPS is off the table but ignored that Powell indicated that  the next two hikes will be 50 BPS each.

A Shocker

Productivity-Prelim came at -7.5% vs. -2.8% consensus. This is a shocking piece of new data. In the past, the U.S. has overcome difficult circumstances because of rising productivity.  This time productivity is falling by a shocking amount.

England

The Bank of England increased its base rate by 25 BPS to 1.0%. Three dissenters voted for a 50 BPS hike.

Germany

Factory Orders in Germany came at -4.7% vs. -1.1% consensus. This is forward looking data and does not bode well for Europe’s largest economy.

Stagnation

European Central Bank Executive Board member Fabio Panetta said that Europe’s economy is “de facto stagnating.”

Jobless Claims

Initial jobless claims came at 200K vs. 184K consensus.

Momo Crowd And Smart Money In Stocks

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

Gold

Money is moving into gold on jobless claims and productivity data.

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

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

Oil

OPEC+ is boosting production by 432K bpd.

The U.S. will announce plans to buy 60M barrels of crude to fill strategic petroleum reserves.  This is unexpected and may  be a wrong headed policy.

Oil is breaking out on the news.

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is pulling back along with speculative stocks.

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 $1907, silver futures are at $23.18, and oil futures are $109.71.

S&P 500 futures resistance levels are 4318, 4400 and 4600: support levels are 4200, 4000 and 3950.

 futures are down 238 points.

 

BILLIONS WILL BE MADE OR LOST BASED ON WHAT POWELL SAYS

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

Fed Decision

Please click here for a chart of the Fed funds rate.

Note the following:

  • FOMC will announce its rate decision at 2pm ET followed by Powell’s press conference at 2:30pm ET.
    • The consensus is for a 50 basis point rate increase.
    • There is a small probability of a 75 basis point rate increase.
    • A 50 basis point rate increase is in the stock market, but not 75 basis points.
      • The Fed statement may be market moving.
    • The market is assuming a less hawkish Powell.
  • We are looking for more guidance on quantitative tightening.
  • The technical set up is for a 5% rally. Please click here for the chart. For the sake of full transparency, no changes have been made to this chart since its first publication yesterday. Please read yesterday’s Morning Capsule for details.
  • The chart shows the Fed funds rate going back to 1955.
  • The chart shows the period leading to and of stagflation.
  • The chart shows a massive rise in the Fed funds rate engineered by Paul Volcker to control inflation.
  • The result of the Fed funds rate hikes by Paul Volcker was a deep recession in 1981 – 1982.
  • Please click here for a chart of DJIA from 1967 – 1982. Note from the chart that the stock market made no progress during this time.
    • Take a few minutes and focus on this chart, especially if you have come to believe the myth that bear markets are always short and all you have to do is wait for the market to go up to new highs in a year or two. 
    • For more details, please read the Morning Capsule from April 28 titled “NEW DATA RAISES THE SPECTER OF THE “S” WORD NOBODY WANTS TO TALK ABOUT.”
  • Stagflation, if it occurs, is the biggest danger to your wealth.  From the large number of requests we have received for a podcast on stagflation, it is gratifying that you understand the dangers of stagflation and are beginning to develop your knowledge to protect your wealth and still take advantage of the new opportunities.
    • Based on your questions, there will be a podcast series on stagflation so that all questions can be answered, and you gain in-depth knowledge. The first podcast in the stagflation series is now live.

ADP

ADP is the largest private payroll processor in the country. It uses its data to give an advanced glimpse of the jobs picture ahead of the official report to be released on Friday at 8:30am ET.

ADP came at 247K vs. 390K consensus. The weakness appears to be an anomaly.

Momo Crowd And Smart Money In Stocks

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

Gold

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

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

Oil

The EU is proposing a ban on Russian oil. Oil is moving up on the news.

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is moving up along with speculative stocks.

Markets

Our very, very short-term early stock market indicator is 🔒but can easily switch to 🔒, first on rumors and then on the Fed statement. 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 $1867, silver futures are at $22.41, and oil futures are $106.63.

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

 futures are up 62 points.

 

STOCK BULLS EXCITED ABOUT HIGH VOLUME REVERSAL BUT WRONG ABOUT THE FED

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

High Volume Reversal

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:

  • In yesterday’s Afternoon Capsule, we wrote in bold letters,

A rally may ensue right here as most of the blind money is invested prior to the close.   

  • The foregoing call has proven spot on.  DJIA closed up 775 points with much of the rally occurring in the last hour.
  • The chart shows a reversal.
  • The chart shows the reversal was on higher volume.
  • The chart shows that the prior reversal was on February 24 on Russia’s invasion, and that reversal was also on higher volume.
  • The chart shows that there was another reversal on January 24 on higher volume.
  • The chart shows that both January 24 and February 24 reversals on higher volume led to tradable rallies.
  • The chart shows an Arora buy signal on March 11 right before the Fed meeting that led to a NASDAQ gain of 13.73%.
  • The Fed is meeting today and tomorrow.
  • Bullish gurus are looking at the chart and based on yesterday’s reversal on higher volume and the Fed meeting, they are predicting a massive rally.
  • In our analysis, the setup is ripe for a massive short squeeze resulting in a big rally. However, in our analysis, bullish gurus are likely wrong about the Fed.
    • Bullish gurus are expecting the Fed to walk back its prior hawkishness.
    • Start with Arora’s Second Law: Nobody knows with certainty what is going to happen next.
    • The probability is high that the Fed will be hawkish tomorrow. The reason is that Powell and other Fed officials likely feel bad that they got the country into this mess of high inflation by first forecasting that there would not be any inflation and when inflation appeared, insisting that inflation was transitory.
  • A hawkish Fed is not conducive to a favorable risk reward.
    • Our system looks at both risk and reward in setups.
    • Most systems these days are focused only on the reward. Even when they have a stop loss, they are not focused on probabilities. For example, a stop loss of 7% with a 70% probability of hitting and a target gain of 10% with a probability of 30% is not a good trade.  In contrast, a stop of 7% with a 30% probability of hitting and a target gain of 10% with a 70% probability is a good trade.
  • Investors need to stay nimble and see what the Fed says and how the market reacts.
  • Keep in mind that the first market reaction is often wrong.  
  • Many subscribers bought TQQQ yesterday in response to the Afternoon Capsule. That trade is now highly profitable with 6 – 8% gain in a short time. If you entered this trade, consider a combination of taking partial profits and raising stops.  No official signal was given because of high risk.  We wrote,

For super aggressive investors only, there is merit to buy now with a tight stop for a potential exit before 2pm on Wednesday.  There is a reasonable probability of a vicious short squeeze.

Australia

The Reserve Bank of Australia increased its base rate by 25 basis points to 0.35%. This is the first rate increase since November 2010.

Earnings Projections

Earnings projections so far in this earnings season are the weakest since the second quarter of 2020.  This is a big negative that investors should pay attention to.

Momo Crowd And Smart Money In Stocks

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

Gold

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

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

Oil

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is range bound.

Markets

Our very, very short-term early stock market indicator is 🔒 due to cross currents. 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 $1862, silver futures are at $22.56, and oil futures are $103.94.

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

DJIA futures are up 21 points.

 

WORST STOCK MARKET START SINCE 1939 – BLIND MONEY POURING IN

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

Worse Start Ever For Wall Street’s Popular Portfolio

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:

  • So far, 2022 has been the worst start for the stock market since 1939.
  • In 2022, the popular 60/40 portfolio has had the worst performance ever.
  • For the regular readers of the Morning Capsule, it is no secret that there is turbulence in the stock market for the following reasons.
    • The dominance of the stock market by the momo crowd.
    • Wrong policies by the Fed.
    • Wrong policies by the Biden administration and before that the Trump administration related to the virus.
  • Significant opportunities are ahead. Stay tuned with the Morning and Afternoon Capsules.
  • In spite of the swoon in the stock market, the pure speculation by the momo crowd has not decreased.
    • In a just conducted sale of virtual land by Yuga Labs, investors bought $320M worth of virtual land.
  • The chart shows that volume was heavier during Friday’s selling.
    • The volume was not heavy enough to indicate a bottom.
  • For bears, the lower support zone shown on the chart is a magnet.  Bulls are going to attempt to take a stand right here.
  • On Sunday evening, the momo crowd was buying stock futures.  Buying continued into the early morning. Light selling is coming in as of this writing.
  • The chart shows that The Arora Report gave a short term buy signal by deploying cash on March 11, one day before the bottom.
  • The chart shows that the market ran up right after the buy signal, and on March 30, The Arora Report gave a call to raise hedges.  During this short period, NASDAQ ran up 13.73%.
  • The chart shows the call to raise hedge was given one day after the top.
    • The momo crowd is excited about the Fed meeting this week. They are expecting a similar rally again.
  • Today is the first day of the month.  Blind money is pouring into Wall Street.  Expect this money to be invested in the afternoon.

China

China conducted an emergency meeting with banks to figure out how to get around potential U.S. sanctions in the event of a regional conflict.

Why would China conduct such a meeting in the first place, and more importantly why would China publicize this meeting?

In our analysis, this meeting indicates that China is testing waters about a potential attack on Taiwan at a time when the U.S. is preoccupied with Ukraine. All bullish investors should take this risk into account.  Consider paying attention to the “Protection Bands And What To Do Now” section below.  

Momo Crowd And Smart Money In Stocks

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

Gold

Money is flowing out of gold on a very strong dollar.  The dollar is rising because Japanese are selling U.S. bonds.  This is also a big headwind for the stock market.  It is just that the momo crowd is oblivious.  

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

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

Oil

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

For longer-term, please see oil ratings.

Bitcoin

There is buying in bitcoin on excitement about virtual land sale bringing in $320M.

Markets

Our very, very short-term early stock market indicator is indeterminable due to too much noise in the data. 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 very strong.

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 $1861, silver futures are at $22.41, and oil futures are $101.

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

futures are up 92 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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