CPI DATA GIVES AMMUNITION TO BOTH BULLS AND BEARS

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By Nigam Arora & Dr. Natasha Arora

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

Consumer Price Index 

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:

  • CPI data is giving ammunition to both bulls and bears.  Here are the details:
    • Headline CPI came at -0.1% month-over-month vs. 0.0% consensus.
    • Core CPI came at 0.3% month-over-month vs. 0.3% consensus.
  • Stock market bulls are encouraged because for the first time in a while, the headline CPI is a negative number.
  • Stock market bears are encouraged because core service inflation is not coming down.
  • Philly Fed President Harker is out saying that a 25 basis point rise in Fed funds at the next meeting is appropriate.
  • There is more Fed speak ahead including St. Louis Fed’s Bullard and Richmond Fed’s Barkin.
  • Biden will speak about inflation at 10am ET.  It goes without saying that Biden will paint a positive picture of the economy and progress on inflation. Momo crowd buying may become aggressive on Biden’s speech.
  • Investors need to keep in mind that there has already been a significant rally in anticipation of softer CPI.
  • What happens next will depend on if a short squeeze starts.  If a short squeeze starts, expect further a rally in the stock market.  If a short squeeze does not start, expect a pullback in the stock market.  
  • In The Arora Report analysis, bringing inflation down to about 4% is relatively easy based on the Fed’s actions.  However, the Fed’s target is 2%.  Bringing inflation down from 4% to 2% is likely to be much more difficult. 

Jobless Claims

Initial jobless claims came at 205K vs. 210K consensus. This indicates that the jobs picture is staying very strong.

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Earnings Floodgate

The earnings floodgate will open tomorrow with bank earnings.  Banks scheduled to report earnings tomorrow include  BAC, C, JPM, and WFC.

Softer Semiconductor Demand

TSM is the largest contract semiconductor manufacturer in the world.  Many semiconductors in Apple’s iPhones are manufactured by TSM.  For this reason, it is important to pay attention to what TSM says about semiconductor demand. TSM expects softer semiconductor demand due to a slowing economy.  TSM expects first quarter revenue to drop by 5%.

Layoffs

Alphabet’s health science unit Verily Life Sciences has laid off about 15% of its workforce.  This indicates that layoffs are beginning to spread to healthtech.

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

Gold futures briefly crossed above $1900 but are pulling back as of this writing.

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 above $18,000.  It appears that whales are manipulating bitcoin higher to suck in retail investors.

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.

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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 $1893, silver futures are at $24.15, and oil futures are at $78.85.

S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 3950, 3860, and 3770.

DJIA futures are up 68 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 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.

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This post was just published on ZYX Buy Change Alert.

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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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