WEEKLY STOCK MARKET DIGEST: INVESTORS PAY ATTENTION: BULLISH PEAK INFLATION NARRATIVE QUASHED

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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.’

INVESTORS PAY ATTENTION TO CONSUMER DICHOTOMY, $2 TRILLION OPTION EXPIRATION

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

Consumer Dichotomy

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 is comfortably above the high band of the support zone. This is a positive, especially in view of the market going up on significant bad news yesterday.
    • Inflation at the producer level rose 11.2%.
    • Putin said that war was the only way.
    • The CEO of the largest bank in the U.S. said that “powerful forces” were threatening the U.S. economy.
  • After carefully reviewing the trading data from yesterday, it becomes clear that a significant part of the up move yesterday was due to option expiration. Options of about $2 trillion notional value are expiring today. The up move is the result of the momo crowd incessantly buying calls.
    • Typically, the option-related move reverses the next week. However, a complication is that if the stock market does not dip, the momo crowd will become more aggressive in buying calls. This will force market makers to chase the market to hedge.
  • The U. S. consumer is showing a dichotomy.
    • Consumer sentiment is very negative. However, the consumer keeps on spending.
    • This dichotomy cannot last forever.
      • If it resolves with the consumer pulling back spending, the stock market will go down.
      • If it resolves with the consumer sentiment improving, the stock market will go up.
    • Retail Sales came at 0.5% vs. 0.6% consensus.
    • Retail Sales Ex-auto came at 1.2% vs. 0.9% consensus.

European Central Bank

ECB has announced its decision.

  • The ECB kept interest rates unchanged.
  • The ECB confirmed that it will end its bond buying program or money printing in the third quarter.
  • In view of spiraling inflation, there was expectation that the ECB would end its bond buying program earlier.

China

At a time when the Fed is likely to aggressively raise rates, China is giving signals that it will cut rates. This is likely positive for Chinese stocks. At this time when China is suffering from Covid lockdowns and Chinese stocks are under pressure, there may be a buying opportunity assuming Covid comes under control. Buy ratings and buy zones will be provided in ZYX Emerging.

Jobless Claims

Initial Claims came at 185K vs. 175K consensus.

Holiday

The stock market is closed for a holiday tomorrow. There will be no Afternoon Capsule today.

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 🔒 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 range bound and will likely move with aggressive speculative stocks.

Markets

Our very, very short-term early stock market indicator is 🔒 due to option expiration. 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 $1976, silver futures are at $25.71, and oil futures are $102.34.

S&P 500 futures resistance levels are 4460, 4600 and 4713: support levels are 4400, 4318 and 4200.

 futures are up 40 points.

Protection Bands And What To Do Now?

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

See also  BUYING OPPORTUNITY IN SOUTH AFRICA, DATA SHOWS ECONOMIC CONTRACTION, BOTH STOCK MARKET BULLS AND BEARS FRUSTRATED WITH THE PRICE ACTION

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.

 

INVESTORS PAY ATTENTION: BULLISH PEAK INFLATION NARRATIVE QUASHED

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

Bullish Narrative Quashed

Please click here for a chart of the Producer Price Index (PPI) Components.

Note the following:

  • Please start out by reading yesterday’s Morning Capsule regarding Consumer Price Index (CPI).
  • After the release of CPI, a bullish narrative that inflation had peaked started gaining traction on Wall Street.
  • Earlier this morning before the release of PPI, the bullish narrative was becoming the theme by talking heads on financial media.
  • At 8:30am ET when the actual PPI numbers were released, the media and talking heads were proven wrong. It never ceases to amaze us that the media and talking heads proclaim with certainty the future that no one can see. They are consistently wrong but seldom come to the realization that it is arrogant to pretend to know the future with certainty.
  • Here are the details of the PPI:
    • Final demand prices increased 11.2% year over year.
    • PPI increased 1.4% month over month versus 1.2% consensus.
      • PPI for goods increased 2.3% as shown on the chart.
      • PPI for services increased 0.9% as shown on the chart.
    • Core PPI came at 1.0% vs. 0.5% consensus.
  • The momo crowd was aggressively buying stocks earlier in the morning.
  • Smart money was selling stocks earlier in the morning into the strength.
  • After the release of PPI, the stock market rally has fizzled, and smart money has stopped selling. The momo crowd continues to buy.
  • In our analysis, in looking at the details of both CPI and PPI together, there is a high probability that the rate of increase of inflation is peaking but inflation itself is not yet peaking. Please take time to understand the foregoing statement as this will be one of the factors determining upcoming changes in buy zones and any future changes in protection bands.  
  • The protection bands are already based on the assumption that the rate of change of inflation may be peaking but inflation itself is not peaking yet.  
  • As an actionable item, all of the foregoing is summed up in the section “Protection Bands And What To Do Now.” 

Momo Crowd And Smart Money In Stocks

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

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 🔒 in the early trade. Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin has fallen below $40,000. Bitcoin is coming under pressure as aggressive speculative stocks are being sold.

Markets

Our very, very short-term early stock market indicator is 🔒 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 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 $1979, silver futures are at $25.84, and oil futures are $102.08.

See also  TACTICAL TARGET IS S&P 500 4100-4200 – LONG WAY TO GO FOR INFLATION TO COME DOWN TO FED’S TARGET

S&P 500 futures resistance levels are 4400, 4460 and 4600: support levels are 4318, 4200 and 4000.

 futures are down 48 points.

 

IGNORE THE HEADLINE INFLATION – CORE CPI BETTER THAN EXPECTED

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

Ignore The Headline

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 headline is scary – inflation is at 8.5% year over year. However, investors need to dig below the surface.
    • CPI came at 1.2% vs. 1.2% consensus month over month.
    • Core CPI came at 0.3% vs. 0.5% consensus.  
  • Smart money is buying on Core CPI coming better than expected.
  • The momo crowd is selling based on the scary headline. 
  • The chart shows that the market is moving up in the pre market.
  • The chart shows that RSI is moving up from an oversold condition, indicating a rally.
  • The chart shows that  is above the top band of the support zone.  This is a positive.
  • Yield on 10-year Treasury has pulled back to 2.70% after hitting 2.80% in Asia prior to the release of the CPI numbers.
  • It is important to observe the reaction of the market for the rest of the day.
    • This number is not likely to change the Fed’s mind.

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

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 continues to trade with aggressive speculative stocks. As speculative aggressive stocks move higher, bitcoin is moving higher and is now above $40,000. Previously, bitcoin had fallen below the psychological support of $40,000.

Markets

Our very, very short-term early stock market indicator is 🔒. Fed speakers are ahead and what they say may swing the indicator. 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 $1973, silver futures are at $25.62, and oil futures are $97.84.

S&P 500 futures resistance levels are 4600, 4713 and 44770: support levels are 4400, 4318 and 4200.

 futures are up 202 points.

 

PREPARE FOR MARKET MOVING DATA AHEAD, GOLD RIPPING UNEXPECTEDLY

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

Market Moving Data Ahead

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

Note the following:

  • Significant market moving data is ahead this week. Start out by understanding stock market technicals going into the important data.
  • The chart shows that Nasdaq 100 ETF  has fallen below the low band of the support zone this morning.  This is a negative.
  • The chart shows that in the early trade  is lifting from the lows on heavy momo buying.  This is a positive in that the momo crowd continues to buy the dip.
  • The chart shows that RSI is now oversold.  This indicates that the slightest good news in the data can cause a rip roaring rally.
  • Here is the important data ahead.
    • CPI will be released tomorrow.  The consensus is 1.2%.  The consensus for Core CPI is 0.5%.  This is the most important piece of data.
      • More important than the data itself will be the reaction in bonds, gold, and stocks. 
    • PPI will be released on Wednesday.  The consensus is 1.2%.  The consensus for the Core PPI is 0.5%.
    • Retail Sales will be released on Thursday. The consensus is 0.6%.  Consensus ex-auto is 0.9%.
      • Lately, there is a divergence between consumer sentiment and what consumers are actually doing. Consumer sentiment is negative, but consumers continue to buy. Normally, both of these data points move in the same direction. The current behavior is an abnormal behavior.  Whichever direction it resolves will make a big difference to the stock market.
    • Initial claims will be released on Thursday. The consensus is 175K.
  • Earnings season is ahead.  More important than earnings will be the reaction to earnings. Important earnings this week include KMX, DAL, FAST, JPM, ALLY, C, GS, MS, TSM, UNH, and WFC.
  • What should you do now before this all important data is released? Consider following the guidance in the “Protection Band And What To Do Now” section below.  
    • Please also pay attention to the post last night on buy zones. 
See also  TECH STOCKS HIT BY WEAKENING DEMAND FOR SEMICONDUCTOR MEMORY

Relief In France

There is relief in the financial markets in Europe after Macron did better than Le Pen in France.  This is important to the world because Le Pen wants French armed forces to be removed from NATO command.

China Lockdown

There was aggressive selling in the Chinese stock market on COVID lockdowns.

Momo Crowd And Smart Money In Stocks

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

Gold

Interest rates are spiking this morning.  Gold should have gone down on spiking interest rates, but instead, it is ripping higher.  Gold is exhibiting abnormal behavior.  When an asset class exhibits abnormal behavior, you should pay attention because it often leads to opportunities. For those desiring next-level information on this behavior, a podcast titled “Gold: A Remarkable Reaction to Interest Rates” will go live shortly.

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

Oil prices took another dive down on the China lockdowns.

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 was supposed to rally after the Miami conference, but instead, it is selling off.  The reason is, as we have been sharing with you, bitcoin has become correlated with aggressive speculative stocks.  Aggressive speculative stocks are being sold in the early trade as interest rates spike higher.

Markets

Our very, very short-term early stock market indicator is 🔒, but the probability of a short squeeze carrying the market higher is increasing.  Short squeezes ahead of an important number like CPI tomorrow are common.  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 $1970, silver futures are at $25.53 and oil futures are $93.93.

S&P 500 futures resistance levels are 4460, 4600 and 4713: support levels are 4400, 4318 and 4200.

futures are down 141 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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