FED’S FAVORITE INFLATION GAUGE DISAPPOINTS BOTH STOCK MARKET BULLS AND BEARS

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By Nigam Arora & Dr. Natasha Arora

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

PCE

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 the stock market is consolidating right below the mini resistance zone.
  • The RSI pattern on the chart shows that the stock market can go either way.
  • The stock market is up this morning due to positive earnings from Salesforce (CRM).  Salesforce is in the Dow Jones Industrial Average (DJIA).  Buying is also coming in due to strong earnings from Snowflake (SNOW) and Synopsys (SNPS).  All three companies are benefiting from AI. 
  • The just released economic data shows that consumer spending is finally beginning to taper from excessive levels relative to incomes.  Here are the details:
    • Personal spending came at 0.2% vs. 0.2% consensus.
    • Personal income came at 0.2% vs. 0.2% consensus.
  • The latest data on the Fed’s favorite inflation gauge PCE has disappointed both bulls and bears.  Bears were pinning their hopes that PCE would be worse than expected and thereby cause a big drop in the stock market.  Bulls were pinning their hopes on PCE triggering another leg of the stock market rally.  PCE came inline with expectations, a scenario that neither bulls nor bears had expected.  Here are the details:
    • Headline PCE came at 0.0% vs. 0.1% consensus.
    • Core PCE came at 0.2% vs. 0.2% consensus.
  • Weekly Initial Claims came at 218K vs. 215K consensus.  This indicates that the jobs picture is staying very strong.
  • 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.

Europe

Eurozone inflation has fallen more than expected.  Flash CPI came at 2.4% year-over-year vs. 2.7% consensus.  Flash Core CPI came at 3.6% year-over-year vs. 3.9% consensus.

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China

PMIs are leading indicators.  Leading indicators carry heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories.  In plain English, adaptiveness means that the model changes itself with market conditions.  Please click here to see how this is achieved.  One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model.  Most models on Wall Street are static.  They work for a while and then stop working when market conditions change.

China’s Manufacturing PMI came at 49.4 vs. 49.7 consensus. Non-manufacturing PMI came at 50.2 vs. 51.1 consensus.  These numbers indicate that the Chinese economy is weakening.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).

In the early trade, money flows are negative in Amazon (AMZN).

In the early trade, money flows are positive 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

The virtual OPEC+ meeting is taking place.

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.

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.

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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 $2055, silver futures are at $25.52, and oil futures are at $78.69.

S&P 500 futures are trading at 4567 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 181 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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This post was just published on ZYX Buy Change Alert.

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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.

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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