WEEKLY STOCK MARKET DIGEST: SMART MONEY BUYING – FIRST SIGNS OF INFLATION PEAKING

By Nigam Arora & Dr. Natasha Arora

Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report

Please scroll down for the section ‘Protection Bands and What To Do Now.’

FIRST SIGNS OF INFLATION PEAKING

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

First Signs

Please click here for a chart of S&P 500 Futures (ES_F).

Note the following:

  • The chart shows when  reported earnings.  earnings were very important because AAPL is a megacap. AAPL earnings were better than the whisper numbers. AAPL earnings triggered a rally in the stock futures.  In the after hours, AAPL stock moved over $167 as the conference call was very positive.  Early this morning, selling came in from Europe.
  • Stock futures took another leg down when two important companies  and  did not provide good guidance and showed margin pressure due to inflation.
  • At 8:30 am ET, important inflation data was released.  This is the data that the Fed watches.  The data was good.
    • Employment cost index came at 1.0% vs. 1.1% consensus.  The prior was 1.3%.
    • PCE Prices came at 0.4% vs. 0.4% consensus.  The prior was 0.6%.
    • Core PCE Prices came at 0.5% vs. 0.4% consensus.  The prior was 0.5%.
  • The chart shows that futures moved up on good inflation data.
  • As the day progresses, bulls will be asking, “Has the inflation peaked?”  If yes, this is good for the stock market. 
  • Sentiment is extremely negative.  Sentiment is not a precise timing indicator, but it is a contrary indicator at extremes.  In plain English, this means that when sentiment becomes extremely negative, the market tends to bounce. 
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • The VUD indicator shows heavy net supply of stocks in the morning prior to the release of good inflation data.
  • As of this writing, after the release of good inflation data, the VUD indicator has turned mostly positive.

Personal Income

Personal Income came at 0.3% vs. 0.5% consensus.

Personal Spending came at -0.6% vs. -0.6% 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 🔒 stocks 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 🔒 oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

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 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 $1789, silver futures are at $22.59, and oil futures are at $88.27.

S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4200, 4000, and 3950.

 futures are down 81 points.

Protection Bands and What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or short-term bond funds 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.

FUTURES WILD RIDE ON MOMO PANIC, ECONOMY RUNNING HOT

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

Futures Wild Ride

Please click here for a chart of  Nasdaq Future (NQ_F).

Note the following:

  • The chart shows futures wild ride overnight. Take a close look at the scale on the right hand side.
  • From the high after the Fed announcement to the low at 10:30 pm ET, futures fell 5.4%.
  • The chart shows that futures have since recovered.
  • Last night as futures dipped, fear became the dominant drive. The momo crowd panicked and sold.
  • As the downward momentum accelerated, smart money stepped in to buy.
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • The VUD indicator shows heavy net supply overnight but net demand is coming in as of this writing.

Economy Running Hot

The economy is running hot as shown by a significant amount of data released this morning.

  • Q4 GDP-Adv. came at 6.9% vs. 5.6% consensus.
  • GDP Price Index came at 6.9% vs. 6.0% consensus.
  • Core PCE came at 4.9% vs. 4.6% consensus.  This is the Fed’s favorite inflation gauge. 
  • Durable Orders came at -0.9% vs. -0.5% consensus.
  • Durable Orders Ex-Transportation came at 0.4% vs. 0.4% consensus.

Jobless Claims

Initial claims came at 260K vs. 260K consensus.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒 stocks 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

Brent crude hit $90.

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

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 and bonds are range bound.

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 $1796, silver futures are at $22.90, and oil futures are $88.26.

S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

 futures are up 181 points.

REDUCE HEDGES, THE FED DAY

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

Reduce Hedges

Please click here for a chart of Microsoft ().

Note the following:

  • The sum total of everything that we have been sharing in the Morning and Afternoon Capsules is that it is time to reduce hedges. Please see the “Protection Bands and What To Do Now?” section.
  • The Morning Capsule is about the big picture and not about an individual stock. The chart is of , a megacap, to illustrate the point.
  • The chart shows when MSFT reported earnings.
  • The chart shows a very large move on earnings.  Such a large move for a megacap stock is not common.
  • The reason for such a large move was that smarter players were hunting for the stops of less knowledgeable investors.
  • The chart shows that when the selling was at its peak The Arora Report issued a buy signal with a new buy zone.  At the time of the buy signal, the stock was trading at $271.36.  The stock is trading at $304.79 as of this writing, an up move of $33.43 or 12% in a short time.
  • A major financial publication headlined a negative article about MSFT earnings that put further pressure to the downside.
  • MSFT earnings were above the consensus and slightly below the whisper numbers.  The market immediately drew an inference from the reported numbers being slightly less than the whisper numbers that the guidance would be below the consensus.
  • The chart shows when guidance was given on the conference call.  The guidance was slightly above the mid point of the consensus but still below the whisper numbers.
  • The chart shows a very big move on guidance.  Such a big move up on guidance that was still below the whisper numbers was unusual.
  • According to our algorithms, the reason for such a big move up on guidance was a short squeeze. 
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • The chart shows that the VUD indicator was solid orange, indicating strong supply during the stock drop.
  • The VUD indicator was also orange during the early rise indicating a strong supply of stock as the stock was rising.  This pattern is one of the characteristics of a short squeeze when accompanied by a rapid rise. 
  • It took the crowd a while to catch up.  As the crowd caught up, the VUD indicator turned solid green, indicating strong demand.  The strong demand continues as of this writing, but there are preliminary indications that selling is going to come in as those who bought at the bottom take profits.
  • After the stock rise, we were receiving a large number of questions from subscribers who had bought a tranche at the bottom in response to the buy signal wanting to take profits on the new tranche.  A signal was issued that there was merit to taking such profits.
  • It is worth repeating that the foregoing is not about MSFT but to illustrate both the market mechanics and how investors are reacting to the news at this time of market turbulence.
  • The foregoing also illustrates that most of the methods being taught these days by gurus to retail investors lead to losses as professionals pick the pockets of the retail investors.  Investors wanting to deepen their knowledge should consider attending the Bullet Proof seminar if you have not already done so.

Fed

The Fed will announce its decision at 2:00 pm ET.  This will be followed by a Powell press conference at 2:30 pm ET.

The consensus is for a 0.25 point interest increase and reducing the balance sheet starting in June.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒 stocks in the early trade.

Gold

The momo crowd is 🔒 gold in the early trade.  This is unusual.  Typically the momo crowd buys gold ahead of the Fed meeting.  This may indicate a major shift in behavior as the Fed starts to tighten.  If this behavior persists, it will be negative for gold and gold stocks. 

Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

The API data showed a draw of 872K barrels vs. 400K barrels consensus.

EIA data will be released at 10:30 am ET.

The driving force for crude continues to be the potential Russian invasion of Ukraine.

The momo crowd is buying oil in the early trade.  Smart money is inactive.

For longer-term, please see oil ratings.

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 and bonds are range bound.

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 $1835, silver futures are at $23.78, and oil futures are $86.56.

S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.

 futures are up 255 points.

SELLING IN ASIA ON WAR RISK CARRIES TO U.S. STOCKS

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

War Risk

Please click here for a chart of S&P 500 ETF () which represents the benchmark stock market index S&P 500 ().

Note the following:

  • The chart shows that the market fell below the support zone and then came back to close near the resistance zone.  This is positive.
  • The come back was the biggest come back since 2008.
  • The chart shows that volume was very heavy. This is positive.
  • The chart shows that RSI has not turned up.  This is negative.
  • After yesterday’s close, the consensus was for a follow through to the upside this morning.
  • Last evening, futures in Asia opened lower on concerns about the war risk between Russia and the U.S. on Ukraine.
  • Selling in Asia has carried over to U.S. stocks this morning.
  • Earnings reported after the close and this morning are mixed.
  •  earnings will be reported after the market close.
  • The Fed meeting has started.  The Fed will announce its policy tomorrow at 2:00 pm ET.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒.

Gold

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒.

For longer-term, please see oil ratings.

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 $1843, silver futures are at $23.73, and oil futures are $83.68.

S&P 500 futures resistance levels are4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

 futures are down 248 points.

RUMORS OF BIDEN MOVE TO COUNTER RUSSIA

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

Potential Russian Invasion

Please click here for a chart of S&P 500 ETF () which represents the benchmark stock market index S&P 500 ().

Note the following:

  • Stocks were set up for a bounce when stock futures opened yesterday. Futures went higher as expected.
  • This morning as the Ukraine situation worsens, futures have given up their gains and turned red. The last thing the stock market needs is a Russian invasion.
  • The momo crowd is aggressively selling this morning.
  • A concern is developing this morning that Biden may be getting ready to defend Ukraine.
    • If some of these reports are true, this is a major departure from the consensus.
    • The consensus has been that the U.S. will depend on economic sanctions to punish Russia but will not intervene to defend Ukraine.
    • NATO has put armed forces on standby.
    • NATO is sending additional fighter jets and ships to eastern Europe.
    • The U.S. is removing some staff members and families from its embassy in Ukraine.
  • Technicals are set up for a rally.
    • The chart shows that volume on Friday was heavy and RSI was very oversold.
    • When heavy volume occurs and RSI is very oversold after a significant drop in the market, the stock market often rallies. The reason is that the heavy volume is an indication of a shake out of weak hands.
    •  curve has started inverting.  This is bullish for the short term.
    • We shared with you on Friday that the momo crowd was aggressively buying puts expiring Friday and market makers were selling stocks to hedge.
    • A vast majority of the puts bought by the momo crowd have now expired worthless, and the momo crowd is now unprotected.
    • It is too early to tell if the momo crowd buying puts and market makers selling to hedge will repeat this week.
    • Put volume on Friday was a record 42M.  This is bullish.
    • NASDAQ weekly ratio of new highs to new lows hit the lowest level since 2008 – 2009.  Historically, such a reading leads to a bounce.
  • There were not many corporate buybacks last week.  Our expectation is that corporations will likely take advantage of lower prices and start buying.  This is bullish.
  • Blind money is beginning to sell.   ETF saw a net outflow of $14.1B last week.  This is bearish.
  • In addition to Ukraine and technicals, the two major factors ahead are the following:
    • Fed announcement on January 26
    • Earnings, especially from megacaps are ahead. If megacaps report good earnings and give good guidance, expect a rally, assuming the Ukraine situation does not worsen and the Fed announcement is as expected. If earnings or guidance are worse, expect NASDAQ to enter a bear market quickly.
  • There is a significant difference between long duration momo stocks, NASDAQ, and S&P 500.  Investors with well diversified portfolios are doing relatively well.  Whereas, those invested mostly in momo stocks are incurring huge losses.
  • The chart shows the support zone.
  • The chart shows that in spite of the drop, SPY is still well above the support zone.
  • S&P 500 is still above where it was during the October 2021 low. 
  • Sentiment is now in the extreme negative zone.  Sentiment is not a precise timing indicator but is a contrary indicator.  In plain English, this means that when sentiment turns extremely negative, the market tends to bounce.
  • It is important for investors to pay attention to “Protection Bands and What To Do Now” section below.  At a time when the momo crowd is more than 100% invested with margin, Arora portfolios are well diversified and 35 – 52% protected.  Moreover, our guidance to conservative investors has been to not start new long term positions and for growth investors to be highly selective.  We are again seeing that investors, investment advisors, and money managers who attended the Bullet Proof seminar are doing significantly better than those who have not attended the seminar.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒.

Gold

The momo crowd is 🔒 gold in the early trade. Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒.

For longer-term, please see oil ratings.

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 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 $1840, silver futures are at $23.87, and oil futures are $83.45.

S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

futures are down 409 points.

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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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