By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Hotter 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 a slight pullback on inflation data.
- The chart shows volume continues to be low, indicating lack of conviction.
- The volume today will be a tell. If the stock market pulls back on heavy volume on bad inflation data, that will be an indication that the bulls are losing control. On the other hand, if the stock market has only a shallow pullback or goes up on lower volume, that will be an indication that bulls continue to be in control.
- CPI was worse than expected. Here are the details:
- Headline CPI came at 0.3% month-over-month vs. 0.2% consensus.
- Core CPI came at 0.4% month-over-month vs. 0.3% consensus.
- In yesterday’s Morning Capsule, we shared with you:
Momo gurus are already being proactive to prevent a selloff if the data shows that inflation is not coming down. The new mantra of momo gurus is that stocks will go up even if inflation does not come down. Keep in mind that momo gurus’ real job is to run up the stock market under the disguise of analysis.
- Momo gurus are extremely clever. Realizing that their new narrative was not that good, now they have come up with a more persuasive narrative to persuade their followers to buy stocks. The new narrative is that this rise in inflation is a one-off.
- The CPI data today shows that Powell’s fear of Burns’ blunder is justified. Arthur Burns was the most intelligent Fed Chairman. He lowered rates when inflation came down but was forced to raise rates again when inflation picked up again. This is known as Burns’ blunder.
- New earnings are having an impact on the stock market.
- Earnings from artificial intelligence darlings Arista Networks Inc (ANET) and Cadence Design Systems Inc (CDNS) are worse than expected. This is causing a pullback in AI stocks.
- Earnings from a momo crowd favorite stock Shopify Inc (SHOP) are less than expected.
- On the flip side, earnings from Warren Buffett’s favorite Coca-Cola Co (KO) are better than expected.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are negative in Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), Nvidia (NVDA), Microsoft (MSFT), Meta (META), and Tesla (TSLA).
In the early trade, money flows are negative 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 *** stocks in the early trade.
Gold
Gold is coming under pressure on higher hotter CPI. In the long term, gold is an inflation hedge, so why is it falling on hotter inflation? The reason is that in the very short term, gold is sensitive to interest rates.
Understanding the behavior of not only gold but also other assets in response to macro data can give you a big edge. The best and easiest way to gain this knowledge is from in-depth podcasts in Arora Ambassador Club.
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
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. If speculative junk stocks get hit, negative sentiment will likely carry to bitcoin.
Also be careful because whales tend to book profits by off loading bitcoin to mom and pop after a run up to round numbers.
Bitcoin miners are being sold after the release of CPI data.
For those interested in generating high risk adjusted returns from bitcoin, it is important to understand the behavior of whales. The easiest way to understand whales’ behavior is to listen to the three part series titled “Whales’ Secrets You Need To Know: Capturing Bitcoin Profits.” Many of you have been asking to gain access to this high value podcast series without joining Arora Ambassador Club. Due to your requests, this podcast series is now available without joining the Club. Please write to ambassador@thearorareport.com if you are interested in access.
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 $2015, silver futures are at $22.43, and oil futures are at $77.53.
S&P 500 futures are trading at 4977 as of this writing. S&P 500 futures resistance levels are 5020, 5210, and 5400 : support levels are 4918, 4852, and 4826.
DJIA futures are down 373 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.
