WEEKLY STOCK MARKET DIGEST: POWELL ADMITS POTENTIAL HARD LANDING – BULLS SPIN THE BAD NEWS TO RALLY STOCKS

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.’

STOCK BUYING ON POWELL DEALING A BLOW TO STOCK BULLS’ THESIS

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

Powell Strikes A Blow To Bulls

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:

  • Stock bulls have been saying that the Fed will succeed in engineering a soft landing.
  • Stock bears have been saying that with one exception, the Fed has never succeeded in engineering a soft landing.
  • Yesterday after the market close, Powell dealt a severe blow to the bulls’ thesis. Powell said that the Fed could not guarantee a ‘soft landing’. Powell defines a soft landing as getting to a 2% inflation rate while keeping employment strong.   Powell admits that it will be challenging.
  • The stock market often works in perverse ways. The bulls are aggressively buying the bad news.
  • Bulls’ narrative is that Powell’s admission of the truth is a mark of the bottom in the stock market.
  • Historically when the stock market goes up on bad news, sometimes it is a tradeable bottom.
  • RSI on the chart shows the stock market is oversold. Oversold markets tend to bounce.
  • The chart shows the market touched the top band of the support zone and then reversed. Many technicians consider this a positive development.
  • The chart shows that the market is now at the bottom band of the support/resistance zone. Prudent investors should wait to see if the market goes above the top band of the support/resistance zone.
  • None of the indicators that together mark a reasonable bottom are in place with the following three exceptions:
    • Buying on bad news
    • Oversold conditions
    • A technical pattern that is not reliable but many gurus believe in.

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

Money is moving out of gold and into cryptos.

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

Money is flowing into bitcoin. Bitcoin is now above $30,000.

There is enthusiasm over tether regaining $1 peg.

Markets

Our very, very short-term early stock market indicator is 🔒 due to significant 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 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 $1808, silver futures are at $20.59, and oil futures are at $108.70.

S&P 500 futures resistance levels are 4000, 4200, and 4318: support levels are 3950, 3860, and 3770.

DJIA futures are up 296 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.

 

FINALLY A RAY OF HOPE BUT FED’S FOLLY WILL CONTINUE TO HAUNT INVESTORS

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

PPI

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 close to the top band of the new support zone. Technically, this is a good place for the bulls to make a stand.
  • The PPI data finally provides a ray of hope. Here are the details:
    • Core PPI came at 0.4% vs. 0.6% consensus.
    • Headline PPI came at 0.5% vs. 0.5% consensus.
  • The ray of hope is in the fact that the core inflation at the producer level is finally less than expectations.
  • It is premature to rejoice because even at 0.4% Core PPI is still too high.
  • Due to the Core PPI coming better than expected, there is about 60% probability of a short term relief rally.
  • Any rally will be technically driven and is likely to run out of steam because the Fed is way behind the curve.
  • The Fed’s folly will continue to haunt investors for a while.
  • For a change, smart money is buying stocks after the release of the PPI number.
  • Also for a change, the momo crowd is selling stocks after incessantly aggressively buying stocks previously. The momo crowd is showing the first signs of understanding that stocks do not always go up and blindly buying the dip without adequate analysis leads to losses.
  • We monitor a large number of gurus as this is one of the components of our proprietary sentiment indicator. A vast majority of gurus have been 100% invested and some have even advocated margin since the market top so that their followers could take advantage of the dip. Many of these gurus have been telling their followers every single day to buy the dip.  Finally, some of these gurus are throwing in the towel today and asking their followers to sell.
    • More gurus need to urge their followers to sell for a lasting bottom to form.
    • Bottoms are formed when there is a capitulation and the momo crowd finally sells aggressively.
    • There are no signs of capitulation at this time.

Jobless Claims

Initial Claims came at 203K vs. 191K consensus.

Pay Attention To The U.K. Data

In the U.K., March GDP came at -0.1%. In plain English, this means that the economy shrank. The reason is that consumers in the U.K were forced to pull back to afford higher prices caused by inflation.

In our analysis, a recession is likely ahead for the U.K.

During the pandemic, the U.K. was often ahead of the U.S. in terms of virus trends.

Is the U.K. consumer foreshadowing what is going to happen to the U.S. consumer? In our analysis at The Arora Report, the probability is high that the U.S. consumer will also need to stop the current spending binge in the absence of free or near free government money. This will be a negative for the stock market.

Finland

The geopolitical risk is increasing. Finland is likely to apply for NATO membership soon. This morning, Russia is threatening retaliatory steps if Finland joins NATO.

Default In China

One of the biggest property companies in China, Sumac China, has defaulted on a dollar bond.

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 🔒 gold 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

The stablecoin Tether has lost its $1 peg. After a plunge earlier this morning, Tether has recovered based on reassurance by the CEO.

After trading under $20,000 earlier this morning, bitcoin is recovering along with Tether.

Markets

Our very, very short-term early stock market indicator is 🔒, but expect the market to open lower. 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.  Money is flowing into the safety of bonds. 

The dollar is stronger. Money is flowing into the safety of the dollar.

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 $1844, silver futures are at $20.92, and oil futures are $104.17.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.

DJIA futures are down 120 points.

 

HOT INFLATION DATA DASHES MOMO HOPES BUT MOMO BUYS STOCKS ANYWAY

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

Inflation

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 momo crowd uses hope as a strategy. Prudent investors know that hope is never a good strategy – this is being vividly demonstrated in the stock market today.
  • Yesterday, the momo crowd aggressively bought NASDAQ stocks as they believed that CPI data would be less than the consensus and the stock market would stage one of the biggest rallies.
  • The chart shows that S&P 500 ETF SPY was running up strongly prior to release of the CPI data.
  • The chart shows when the CPI data was released.
  • CPI data came worse than expected. Here are the details:
    • CPI came at 0.3% vs. 0.2% consensus.
    • Core CPI came at 0.6% vs. 0.4% consensus.
  • The chart shows a quick drop in the stock market on the CPI numbers.
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • The chart shows that the VUD indicator was solid green, indicating net demand for stocks before the release of the CPI data.
  • The chart shows that the VUD indicator is solid green even after the release of the CPI data. The reason is that the momo crowd is aggressively buying the dip.  
  • Of note is that smart money is not selling, perhaps because smart money already sold into the rallies over the last few days.  
  • From a traditional, technical analysis perspective, the market is right at the prior lows and any break below will bring technically oriented sellers.
  • Please click here for the day chart of S&P 500 ETF SPY which was provided with yesterday’s Morning Capsule. For the sake of full transparency, the chart has not been updated. The market is now below the zone marked as the support zone on the chart.

China

On Tuesday, Shanghai reported zero new cases of coronavirus. Stocks in China and Hong Kong rallied on the virus news.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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

Cryptocurrency algorithmic stablecoin TerraUSD plunged to less than 25% of its nominal $1 stable value before staging a partial recovery.  After all, this stablecoin is not stable. 

This has exposed a flaw in the algorithmic stablecoin as they cannot sell bitcoin to backup the stablecoin due to lack of liquidity in bitcoin. 

The organization backing TerraUSD has announced a recovery plan and is seeking a bailout.

Coinbase stock (COIN) has plunged after reporting earnings less than the consensus. Coinbase is the largest U.S. cryptocurrency exchange. Coinbase CEO said that there is “no risk of bankruptcy.”       

Markets

Our very, very short-term early stock market indicator is 🔒 due to 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 $1837, silver futures are at $21.39, and oil futures are $102.62.

S&P 500 futures resistance levels are 4000, 4200 and 4318: support levels are 3950, 3860 and 3770.

DJIA futures are down 123 points.

 

MOMO CROWD BUYING STOCKS AHEAD OF THE KEY INFLATION DATA

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

A Smart Move Or Jumping The Gun?

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 all important Consumer Price Index data will be released tomorrow at 8:30am ET.
  • In yesterday’s Morning Capsule we wrote,

CPI data has the potential to be a binary event.

Bulls are contending that the CPI data will show lower inflation and trigger one of the biggest stock market rallies ever.  

  • This morning, the momo crowd is buying stocks in anticipation of good CPI data.
  • In our analysis, there is a fair probability that the momo crowd may turn out to be right. However, the probability is not strong enough to provide a favorable probability adjusted risk reward ratio to jump the gun and buy ahead of the data. There is no smart money buying.  As we have shared with you before, the momo crowd focuses only on the rewards and not on the risks – if you do not consider the risks, there is potentially high reward in buying ahead of the data.  In contrast to the momo crowd, the smart money takes into account risk first and reward second.
  • Investors need to be careful even if the CPI data is good. In our analysis at The Arora Report, the most likely scenario is for inflation to slow, but inflation is still way above the 2% target of the Fed. Moreover, the wages that have already risen are going to have a difficult time going back.
  • Biden is going to speak about inflation. Bulls are excited that Biden may be able to soothe their nerves.
  • The chart shows that yesterday the market fell below the low band of the support zone and then recovered on short covering.
  • Investment gurus continue to teach to put stops below key levels.  They do not think in terms of zones and put the entire quantity at one price.  The sheep continue to follow.  
  • S&P 500 4000 is a key level, and many stops were put right below it.  This is like locking the door to your house and putting the key under the doormat.  Smarter players know that the stops of the less informed investors are like a sitting duck. Such stops were taken out yesterday.  After the stops were taken out, the selling pressure disappeared and helped the market rise.  
  • Many gurus are claiming that yesterday formed the bottom. Note from the chart that the volume was heavier but not heavy enough to be consistent with the bottom.
  • VIX and many other indicators do not indicate the bottom.
  • Due to very oversold conditions, a quick snap back rally in stocks may occur. However, the lasting power of the rally will depend on the CPI data tomorrow.

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 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is bouncing along with speculative stocks.

Markets

Our very, very short-term early stock market indicator is 🔒 but may reverse due to Biden’s speech and also speeches from several Fed members ahead.  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 $1858, silver futures are at $21.81, and oil futures are $102.80.

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

DJIA futures are up 291 points.

 

INVESTORS PAY ATTENTION – NO MOTHER OF SUPPORT ZONES NEARBY – CPI DATA AHEAD

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

No Mother Of Support Zones

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:

  • Back in January 2020, The Arora Report made a call that the stock market would see a significant drop due to the virus. At that time, Wall Street had decided that the virus would not be a problem.
  • The stock market continued to rise after the Arora call in January and made a new high in mid February 2020.
  • We gave investors a clear message of where to buy. The Arora Report coined the term “mother of support zones.”
  • The Arora Report lowered buy zones by a significant amount to be consistent with the mother of support zones.
  • This chart linked here shows that the market fell in March 2020 to the top of the mother of support zones and then rebounded.
    • Most good stocks such as Apple, Microsoft, and Disney fell well into the much lowered buy zones and subsequently staged big rallies.
  • Early in 2022, The Arora Report gave you three scenarios:
    • A 14% drop in the stock market
    • A 28% drop in the stock market
    • A 40-50% drop in the stock market
  • The chart shows that the first scenario has come true.
  • The chart shows that this morning in the pre market, stocks touched the top band of the support zone we have been showing you for awhile.
  • The chart shows two new support zones.
  • The lowest support zone shown on the chart is consistent with the second scenario given earlier in the year.
  • Here is the most important point.
    • Unlike 2020, there is no mother of support zones nearby to contain the drop in the stock market if the Fed loses control. 
    • On the optimistic side, right now the Fed is contending that it can achieve a soft landing.
    • Historically, with one exception, the Fed has never succeeded at achieving a soft landing.  
  • CPI data will be released at 8:30am ET on May 11.
    • CPI data has the potential to be a binary event.
    • Bulls are contending that the CPI data will show lower inflation and trigger one of the biggest stock market rallies ever.  
  • Note from the chart, that the low this morning is lower than the low formed on Russia invasion.
  • As an actionable item, the sum total of the foregoing is in 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

The dollar has risen to a two decade high.  Since gold is priced in dollars, the price of gold goes down when the dollar rises.  

It is remarkable that the price of gold has held up so well so far in spite of a very strong dollar.  In theory, based on the dollar rise, the price of gold should have been about $200 lower than where it is. This is very bullish for 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

Saudi Arabia is cutting oil prices for all countries except the United States.

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 being sold with NASDAQ stocks and has now fallen below $33,000.

For the first time in a long time, money is beginning to flow out of bitcoin and into gold.  

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.

After hitting new highs, the dollar is pulling back.

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 $1865, silver futures are at $21.83, and oil futures are $107.20.

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

DJIA futures are down 379 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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