By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Hotter Core 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 chart shows that the stock market is in between the top support zone and mini resistance zone.
- The chart shows that RSI is approaching oversold.
- The chart shows that, overall, the stock market is directionless.
- The newly released data shows that core inflation is running hotter than expected. Here are the details of the consumer price index.
- Headline CPI came at 0.6% vs. 0.6% consensus.
- Core CPI came at 0.3% vs. 0.2% consensus.
- Initially, both stock and bond markets reacted negatively to the hotter than expected core inflation, but buying came in quickly as momo gurus’ new narrative took hold. Momo gurus are often wrong. Nonetheless, you need to pay attention to them because the momo crowd blindly follows them.
- Momo gurus’ new narrative has two parts.
- Buy stocks because headline CPI came as expected. The flaw in this narrative is that on an annualized basis, headline CPI is at 7.2%. Momo gurus counter that the number is high because of higher oil prices and the resulting higher gas prices. Well, most people drive and spend money on gas; it is fine to exclude gas for analysis, but the reality is that rising oil prices can not simply be ignored.
- The second part of the momo gurus’ new narrative is to buy stocks by looking past the hotter than expected core CPI. The reason is that they claim to know that in the future core CPI will come down. Remember, Arora’s Second Law of Investing and Trading: “Nobody knows with certainty what is going to happen next in the markets.” The reality is that nobody knows, including momo gurus, what core CPI will do in the future.
- Producer Price Index, which measures inflation on the producer level, will be released tomorrow at 8:30am ET.
- The U.S. economy is 70% consumer based. For this reason, prudent investors pay attention to retail sales. Retail sales data will be released tomorrow at 8:30am ET. The consumer has been on a buying binge with excessive spending. There are many metrics that are showing that the consumer is running out of cash and charging more and more to credit cards. Tomorrow’s data will be a tell on the status of consumer spending.
- Tech CEOs are heading to Washington for a seven hour long session with senators on AI. All 100 senators have been invited. Expect the momo crowd to try to move up AI stocks. However, the session is closed to cameras. This will limit any upside buying.
- Quadruple witching is ahead on Friday. In quadruple witching, stock index futures, futures options, stock options, and single stock futures expire.
- Quadruple witching often leads to volatility. Historically, often, quadruple witching in September is vicious.
- ARM IPO is 10 times oversubscribed. This is creating positive sentiment.
- As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the protection band.
Europe
There is speculation that the European Central Bank will hike interest rates by 25 basis points tomorrow.
The U.K.’s GDP contracted at the fastest monthly rate since December. Economic data in the U.K. has often led economic data in the U.S.
India
After the success of the G-20 summit in New Delhi, sentiment towards Indian stocks is approaching extremely positive. Keep in mind that when sentiment enters the extremely positive zone, it is a contrary signal. In plain English, this means that it is time to sell. However, sentiment is not a precise timing indicator.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), and Alphabet (GOOG).
In the early trade, money flows are neutral in Microsoft (MSFT).
In the early trade, money flows are mixed in S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.
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 *** in oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is range bound above $26,000.
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 $1932, silver futures are at $23.17, and oil futures are at $89.23.
S&P 500 futures are trading at 4516 as of this writing. S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.
DJIA futures are down 31 points.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold good, very long term, 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.
Traditional 60/40 Portfolio
Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.
Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.
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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 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.
