By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Stock Buying Tempered
Please click here for a chart of FedEx stocks (FDX).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of FDX is being used to illustrate the point.
- FedEx is known as the bellwether of the economy.
- The chart shows a big fall in FDX stock after it reported earnings.
- The chart shows that prior to the earnings release, there was heavy volume with a slight drop in the stock. From a technical analysis point of view, this was a great indication that the stock might fall after earnings. This is a case where simply paying attention to volume would have worked.
- Most important for the macro picture is that revenues at FedEx fell.
- FedEx’s overall revenue fell 2.8%.
- Revenue in freight fell 3.8%.
- Revenue in express fell 5.6%.
- FedEx CEO Raj Subramaniam blamed a weak economic backdrop as well as “significant demand disruption” as reasons for declining revenues.
- We had previously shared with you that when the stock market is this overbought, something unforeseen always comes along to at least temper enthusiasm and often causes selling.
- In a normal overbought market, poor FedEx revenues would have caused a major drop in the overall stock market in the early trade. However, that is not the case today; there is only a slight drop in the early trade. The reason is that the stock market continues to be in the grip of market mechanics pushing the stock market to the upside.
- We wrote in yesterday’s Afternoon Capsule,
Note the difference in the VUD indicator today compared to yesterday. Yesterday the VUD indicator was solid green. The difference in the VUD indicator indicates that market mechanics are beginning to become less strong.
- Give it to the momo gurus – they are excellent at their job of running up the stock market in the disguise of analysis. Momo gurus have a narrative to persuade the masses to buy stocks and ignore the implications of FedEx earnings. Their new narrative is that FedEx earnings are not as bad as they could have been and that is a reason to buy stocks. All you have to do is look at the FedEx chart and see how the stock had run up going into earnings – you can quickly assess for yourself that the new narrative is bogus. If analysts were expecting bad earnings from FedEx, the stock would not have run up going into earnings like it did.
- 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.
China Threat
Chinese President Xi reportedly told Biden that China will reunite Taiwan. Right now, the stock market is oblivious to the Taiwan issue.
United Kingdom
There is encouraging news on inflation from the U.K. CPI came at -0.2% vs. 0.2% consensus month-over-month. CPI came at 3.9% vs. 4.6% consensus year-over-year.
Germany
There is also encouraging news on inflation from Germany. PPI came at -0.5% vs. -0.2% consensus month-over-month.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Alphabet (GOOG).
In the early trade, money flows are neutral in Microsoft (MSFT) and Tesla (TSLA).
In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Apple (AAPL), and Meta (META).
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 *** in 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 build of 0.939M barrels vs. a consensus of a draw of 2.233M 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 range bound.
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 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 $2046, silver futures are at $24.36, and oil futures are at $74.86.
S&P 500 futures are trading at 4812 as of this writing. S&P 500 futures resistance levels are 4826, 4918, and 5020: support levels are 4770, 4713, and 4600.
DJIA futures are down 61 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.
