By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
CPI
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 in the early trade this morning, the stock market broke above the top band of the mini resistance zone.
- The chart shows that as of this writing the breakout appears to be failing.
- Stock market bulls ran up the stock market Friday and yesterday in anticipation of lower inflation numbers.
- This morning, before the release of CPI data, the momo crowd was aggressively buying stocks. This is inline with the momo crowd’s pattern. They buy ahead of key events hoping for better numbers. In contrast, smart money tends to not buy before an event because they understand there is risk if the numbers are worse than expected.
- CPI came slightly worse than the consensus but significantly worse than the whisper numbers. Here are the details:
- Headline CPI came at 0.1% vs. 0.0% consensus.
- Core CPI came at 0.3% vs. 0.3% consensus.
- However, it is important for prudent investors to note that whisper numbers flying around Friday and yesterday for Core CPI were 0.1%.
- The momo crowd bought immediately after the release of CPI, but smart money stepped in to sell the rally.
- The consensus in the stock market now is that the Fed will cut interest rates five times in 2024, and the first cut will be in March.
- Prudent investors should take the stock market consensus with a grain of salt. In The Arora Report analysis, the reasons are very simple.
- 0.3% core inflation is 3.6% annualized. The Fed’s target is 2%. The Fed is not about to change its target.
- Powell is very aware of Burns’s blunder and does not want to repeat it. Arthur Burns was perhaps the most intelligent Chairman of the Fed. He lowered interest rates when inflation came down, but then inflation came roaring back and he had to raise interest rates again. This is known as Burns’s blunder.
- 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.
- For guidance within the protection band, there is a change. Please see the “Buy Zones and Buy Now Ratings” and “Nibbling” sections from yesterday’s Afternoon Capsule.
Epic Google Loss
Epic Games had sued Google (GOOG, GOOGL) claiming that its app store and Google Play Billing were illegal monopolies. The news is that Epic has won the lawsuit. Google intends to appeal. Google makes substantial revenues from the Google Play app store. These revenues are now at risk. There is a negative readthrough for Apple (AAPL).
In The Arora Report analysis, investors are underestimating the antitrust risk to both Alphabet and Apple.
Layoffs
Toy maker Hasbro (HAS) is planning to layoff 900 people, or about 20% of its staff, due to a fall in sales of games and toys during the Christmas season.
Prudent investors should note that this data point runs contrary to stock market bulls’ expectations that the consumer will continue to excessively spend during this holiday season.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN).
In the early trade, money flows are neutral in Microsoft (MSFT).
In the early trade, money flows are negative in Nvidia (NVDA), Alphabet, Meta (META), Tesla (TSLA), and Apple.
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 briefly *** after the release of the data but is otherwise inactive.
Gold
The momo crowd is *** in gold in the early trade. Smart money is *** in the early trade.
For longer term, please see gold and silver ratings.
Oil
There is a fear of oil glut.
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) has stabilized over $41,000.
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 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 $2000, silver futures are at $23.22, and oil futures are at $70.51.
S&P 500 futures are trading at 4677 as of this writing. S&P 500 futures resistance levels are 4713, 4770, and 4826: support levels are 4600, 4460, and 4400.
DJIA futures are up 51 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 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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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.
