INVESTORS ELATED ON CPI DATA, DR. COPPER AT A NEW HIGH ON SHORT SQUEEZE

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By Nigam Arora & Dr. Natasha Arora

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

Cooler Inflation Data

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 breaking out above the resistance zone.
  • The chart shows a highly unusual occurrence – RSI is at 100.  This is the most extreme overbought level.  The extreme overbought level indicates that either the stock market is ready for another strong up leg, or the breakout is going to fail.
  • Sentiment is extremely positive.  At extremes, sentiment is a contrary indicator.  In plain English, extreme positive sentiment is a sell signal.  However, it is important to remember that sentiment is not a precise timing indicator.
  • In The Arora report analysis, based on the other macro and fundamental data, there is about a 40% probability that the breakout will fail even though technicals are very strong.
  • Consumer Price Index (CPI) came slightly cooler than expected.  Here are the details:
    • Headline CPI came at 0.3% vs. 0.4% consensus.
    • Core CPI came at 0.3% vs. 0.3% consensus.
  • As most investors are elated over the CPI number, prudent investors need to remember that on an annualized basis, core CPI is still 3.6%.  The Fed’s target is 2%.  Further, prudent investors need to remember that goods inflation is coming down due to over production in China, but services inflation is still sticky.   
  • The U.S. economy is 70% consumer based.  For this reason, prudent investors pay attention to retail sales.  Here is the latest retail sales data.
    • Headline retail sales came at 0.0% vs. 0.4% consensus.
    • Retail sales ex-auto came at 0.2% vs. 0.2% consensus.
  • Retail sales data shows that the consumer is finally pulling back.  This will negatively impact earnings.  In the long run, the single best determinant of the stock market is earnings.  However, at least for today, elated investors are not thinking far ahead about earnings.
  • It is said that copper has a Ph.D. in economics.  That is why it is called Dr. Copper.  When the economy is booming, demand for copper goes up.  In recessions, demand for copper drops.  Copper futures in New York just hit a new high. Copper is also heavily used in electric vehicles and solar panels.  Heavy demand for electricity by artificial intelligence data centers will also increase copper demand.
  • In The Arora Report analysis, the new high in copper is not indicative of the economy but is due to a vicious short squeeze.  The trigger for the short squeeze is investors looking for a derivative play on artificial intelligence.  
    • One of the largest copper producers Freeport-McMoRan (FCX) is in the ZYX Buy Model Portfolio.  FCX operates in both North and South America, but its most important mines are in Indonesia.  Indonesia ETF EIDO is in the ZYX Emerging Model Portfolio.
    • A copper producer First Quantum Minerals (FQVLF) is in ZYX Buy in the portfolio that surrounds the core Model Portfolio.  FQVLF is a Canadian company that is a buyout target.  To date, 194 Arora portfolio companies have been bought out producing a fortune for members who invest in buyout targets.
    • For those who like ETFs, metals and mining ETF XME as well as commodities ETF PDBC are in the ZYX Allocation Model Portfolio.
  • 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.
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Magnificent Seven Money Flows

In the early trade, money flows are positive in Alphabet (GOOG), Meta (META), Nvidia (NVDA), and Tesla (TSLA).

In the early trade, money flows are neutral in Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT).

In the early trade, money flows are positive 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.

Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling.  Over a long period of time, investors come out ahead by adopting smart money’s ways.  The exception is in a raging bull market – for very, very short term trades, consider following the momo crowd and not 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

API crude inventories came at a draw of 3.104M barrels vs. a consensus of a draw of 1.350M barrels.

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 (BTC.USD) is being aggressively bought on lower CPI.  This again busts the myth propagated by the whales that bitcoin is an inflation hedge.  The hard data shows that bitcoin is not an inflation hedge, but rather an instrument for speculation.  

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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 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 $2377, silver futures are at $29.26, and oil futures are at $77.75.

S&P 500 futures are trading at 5293 as of this writing.  S&P 500 futures resistance levels are 5400 and 5500: support levels are 5256, 5210, and 5020.

DJIA futures are up 159 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.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

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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 seven 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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This post was just published on ZYX Buy Change Alert.

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Picture of 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.

Picture of 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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