INVESTORS PAY ATTENTION: TARGET BUSTS THE BULLISH MYTH

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By Nigam Arora & Dr. Natasha Arora

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

The Bullish Myth

Please click here for a chart of Target (TGT).

Note the following:

  • The Morning Capsule is about the big picture and not about individual stocks.  The chart of TGT is being used to illustrate the larger point.
  • Until now, the bullish case for stocks has been that non-working class consumers were not pushing back against higher prices.
  • Target earnings show that the bullish case is a myth. The myth is now busted.
  • TGT attracts more affluent customers relative to Walmart (WMT).
  • Here are the key points from TGT earnings.
    • Target’s revenue rose to $25.17B vs. $24.49B consensus.  In spite of higher revenues excluding items, earnings came at $2.19 vs. $3.07 consensus.  
    • Earnings fell 41% from the year ago period.
    • Target is overstaffed.
    • Target has too much inventory but the wrong kind.
    • First it was Amazon (AMZN), then it was WMT, and now it is TGT.
    • AMZN and WMT earnings short falls were explained away.  Please see yesterday’s Morning Capsule regarding Walmart’s earnings.
  • With the benefit of hindsight, the way AMZN and WMT provided the information, it was misleading.  Now there is no more putting lipstick on this pig – the consumer is resisting higher prices.
  • The implication is that earnings are going to go down and so should the stock market.
  • The chart shows about 24% drop in TGT stock on earnings.
  • This kind of drop following the drop in WMT yesterday is highly unusual and indicates how much froth was built up not only in speculative stocks and technology stocks but also in non-tech blue chips that were considered safe until yesterday.
  • The chart shows the pre-pandemic high.
  • Wall Street is creating a new narrative to persuade investors to keep buying stocks.  The new narrative is that after TGT earnings, growth stocks look good, and it is now time to buy tech stocks.  
  • Let us stay neutral and observe if the new narrative starts working or if it fails.
  • Even though Wall Street is ignoring hawkish comments from Powell yesterday, prudent investors are well advised to pay attention. Please see yesterday’s Afternoon Capsule for the key points of Powell’s comments.
  • Pay attention to the “Protection Bands And What To Do Now” section below.
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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 draw from strategic petroleum reserves was supposed to increase oil inventory.  However, API data showed a draw of 2.445M barrels vs. a consensus of a build of 1.533M barrels.

EIA data will be released at 10:30am ET and is considered more authoritative.

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 has fallen below $30,000 in correlation with selling in aggressive 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 $1809, silver futures are at $21.59, and oil futures are $111.36.

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

DJIA futures are down 281 points.

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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.

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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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