NEW HOTTER INFLATION DATA – MOMO BUYS THE DIP, FED BLUNDER SHOWS UP IN ROARING MEME STOCKS

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By Nigam Arora & Dr. Natasha Arora

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

Hotter Inflation 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 stock market is in the resistance zone.
  • As is their pattern, the momo crowd was buying ahead of the release of the Producer Price Index (PPI) on hope strategy.
  • The momo crowd’s hopes were dashed when PPI data came much hotter than expected.  Here are the details:
    • Headline PPI came at 0.5% vs. 0.3% consensus.
    • Core PPI came at 0.5% vs. 0.2% consensus.
  • The chart shows the stock market first dipped on bad inflation data, but as of this writing in the premarket, the momo crowd is aggressively buying the dip.
  • Prudent investors, in The Arora Report analysis, would want to wait to see Consumer Price Index (CPI) data tomorrow before taking any action.  CPI will be released tomorrow at 8:30am ET.
  • We have previously shared with you that the Fed’s second blunder has loosened financial conditions way beyond where they should be based on the economic data.
  • The Fed’s blunder is now showing up in meme stocks roaring back.  Earlier this morning, GameStop (GME) was up 163% in the premarket on top of 74% gain yesterday.
  • The meme crowd ran up AMC Entertainment (AMC) 156% this morning, trading as high as $13.30 in the premarket.  AMC took advantage of the meme crowd to raise about $250M of new capital by selling shares at $3.45.  When the company is selling shares at $3.45, why would the meme crowd buy the same shares at $13.30?  The answer is the meme crowd is not doing any analysis other than becoming a meme to cause a short squeeze.
  • The last meme craze ended in tears for the meme crowd with big losses.  You may recall that The Arora Report gave a number of signals on meme stocks.  The vast majority of them were highly profitable.  If the meme craze continues, we will return to the same playbook that was successful last time and start providing you with signals.  It is important to remember that such signals, if given, will be for short term trades and not investments.
  • In addition to GME and AMC, here are the stocks the meme crowd is targeting: PLUG, BB, KODK, LMND, NVAX, SPWR, TUP, NEGG, SAVE, HTZ, KOSS, RDDT, VFS, RIVN, and AI.
  • Among earnings, the most notable are earnings from Dow Jones (DJIA) component Home Depot (HD).  Here are the details:
    • Home Depot showed its sixth consecutive quarter of negative sales growth.
    • Same store sales decreased by 3%.
    • Earnings were roughly inline with whisper numbers.
  • 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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Layoffs

Walmart (WMT) is laying off hundreds of corporate employees.  Walmart is also calling remote workers back to the office.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Tesla (TSLA).

In the early trade, money flows are neutral in Apple (AAPL).

In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), Meta (META), Microsoft (MSFT), and Nvidia (NVDA).

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) 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 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.

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.

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Gold futures are at $2353, silver futures are at $28.67, and oil futures are at $78.59.

S&P 500 futures are trading at 5241 as of this writing.  S&P 500 futures resistance levels are 5256, 5400, and 5500: support levels are 5210, 5020, and 4918

DJIA futures are up 12 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.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

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.

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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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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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