By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Inflation Cools At Producer Level
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 yesterday’s attempt for the stock market to break above the upper band of the support/resistance zone failed. Initially, on release of CPI data, the stock market rose above the upper band but was not able to sustain. Please see yesterday’s Morning Capsule and Afternoon Capsule.
- The chart shows that there is an up move in the stock market in the early trade on PPI and jobless claims data. However, the move is contained within the support/resistance zone.
- The interpretation of the foregoing is that in spite of the overall technical buy signal that the stock market is on, the upper band of the support/resistance zone is offering very stiff resistance.
- Bulls are disappointed as they expected the stock market to rocket higher due to improving macro data on inflation.
- The Arora Report interpretation is that big money is getting concerned about the potential recession and is taking advantage of any up moves to sell.
- Inflation at the producer level significantly cooled. Here are the details:
- Headline PPI month-over-month came at -0.5% vs. 0.1% consensus.
- Core PPI month-over-month came at -0.1% vs. 0.2% consensus.
- Weekly initial jobless claims is a leading indicator. It carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories. Adaptiveness, in plain English, means that the model automatically changes with market conditions. Please click here to see how this is achieved.
- Weekly initial claims are now decisively above 200K. Initial claims came at 239K vs. 236K consensus.
- This indicates that the strength in the jobs market is finally beginning to wane. This is a step in the right direction for inflation to cool. As the strength in the employment picture wanes, wage increases are becoming restrained. In some cases such as information technology, wages are even falling.
- This is exactly what the Fed has been trying to achieve. The Fed is succeeding. In the long term, this is a positive for the stock market.
- As an actionable item, the protection band offers the right balance between various crosscurrents.
Surprise From China
China’s trade surplus rose to $88.19B in March vs. $39.20B consensus. The big surplus is due to better than expected exports to Europe and Asia. This data should be interpreted that economies in Europe and Asia are doing well.
Europe
In Germany, March CPI came at 0.8% month-over-month vs. 0.8% consensus.
Eurozone industrial production came at 1.5% vs. 1.0% consensus.
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 is seeing 🔒 on PPI data.
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 continues to levitate. There is significant buying in bitcoin by retail investors. So far institutions seem to be staying away.
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 $2059, silver futures are at $25.98, and oil futures are at $82.90.
S&P 500 futures are trading at 4134 as of this writing. S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.
DJIA futures are up 59 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 five 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.
