WHOLESALE INFLATION LOWER THAN EXPECTED BUT RETAIL SALES DATA CREATES A RETHINK IN THE STOCK MARKET

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By Nigam Arora & Dr. Natasha Arora

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

New Important Economic 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 the gap up yesterday and the follow up rally on better than expected Consumer Price Index (CPI).
  • The chart shows the mini resistance zone that is the next magnet.
  • RSI on the chart shows that the stock market is very overbought in the short term.  However, this is common when market mechanics of positioning and year end chase take over.  Market mechanics are very powerful.  About two thirds of the stock market rise this year is due to market mechanics.  Wall Street professionals closely guard the details of market mechanics because of their very high value.  For those who want to take their investing to the next level, there are several podcasts on market mechanics in Arora Ambassador Club.
  • The chart shows that the stock market was running up earlier this morning prior to the release of important economic data on follow through momentum from yesterday.
  • There is more good news on inflation from the Producer Price Index (PPI).  Here are the details:
    • Headline PPI came at -0.5% vs. 0.1% consensus.  This is the biggest decline since April 2020.
    • Core PPI came at 0.0% vs. 0.3% consensus.
  • For a split second, futures rose on better than expected PPI, but then the data on retail sales gave investors pause.
  • Here are the details of retail sales data:
    • Headline retail sales came -0.1% vs. -0.3% consensus.
    • Retail sales ex-auto came at 0.1% vs. -0.2% consensus.
  • In The Arora Report analysis, even though retail sales are better than the consensus, they are worse than the whisper numbers that were floating around yesterday.  
  • Further in The Arora Report analysis, retail sales data shows that the consumer buying binge is beginning to slow down.  We projected months ago that consumer liquidity will start tightening up beginning in late October.  The just released data shows the Arora call was spot on.  Even though consumer liquidity is starting to tighten, the consumer still has significant liquidity to continue spending.
  • The crucial holiday spending is ahead.  The consumer is expected to go overboard on holiday spending.
  • In The Arora Report analysis, as consumer liquidity declines further next year, there may be a hangover after holiday spending.  
  • Right now, the stock market is not thinking that far ahead.  However, prudent investors should look as far ahead as they can and always attempt to get ahead of the curve.  When you look ahead, over a period of time, you end up extracting significantly more profits from the markets.
  • There are two important earnings from two retailers that have an impact on the entire market:
    • Target (TGT) stock is flying as the company reported earnings of $2.10 vs. $1.47 consensus. The company is issuing inline guidance.  Prudent investors should note that comparable same store sales fell 4.6%, comparable digital sales fell by 6.0%, and the total revenue was 4.2% lower than last year.
    • TJX (TJX) reported $1.03 vs. $0.99 consensus.  Revenues rose to $13.27 vs. $13.09B consensus. Of note for prudent investors is the company is issuing downside guidance for Q4; sees earnings of $0.97 – $1.00 vs. $1.13 consensus.
  • Biden and Xi are meeting in San Francisco today.
  • 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 Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).

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 *** 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 1.335M barrels vs. a consensus of a build of 1.4M 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 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 $1969, silver futures are at $23.47, and oil futures are at $77.44.

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S&P 500 futures are trading at 4524 as of this writing.  S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are up 47 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.

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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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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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