By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Hotter Inflation
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 hovering above the trendline.
- The chart shows when the Consumer Price Index (CPI) was last reported, the stock market fell as CPI was hotter than expected.
- The difference between when CPI was reported last time as shown on the chart and the CPI release this time is that stock market euphoria has significantly expanded.
- The chart shows that the stock market is rising after the CPI report today.
- CPI came hotter than expected. Here are the details:
- Headline CPI came at 0.4% vs. 0.3% consensus and 0.2% whisper number.
- Core CPI came at 0.4% vs. 0.3% consensus and 0.2% whisper number.
- On a micro level, the stock market quickly dipped after the release of the hotter than expected CPI, but then the momo crowd stepped in to aggressively buy the dip.
- If the stock market was in a rational phase, it would have seen a big drop today on the hotter than expected CPI. However, the stock market is in a euphoric phase. In a euphoric phase, bad news is good news, and good news is great news. A characteristic of the euphoric phase is that all news is bought, irrespective of what it is.
- Momo gurus have a new highly flawed narrative to persuade their followers to buy stocks. The narrative is that year-over-year inflation came at 3.2% vs. 3.1% consensus.
- As we have shared with you several times along the way, looking solely at year-over-year is like driving while looking only in the rearview mirror. Investors should look at month-over-month for the last three months – this is like looking through the windshield. Investors should also look at year-over-year, but that is like looking through the rearview mirror. When you read about momo gurus’ narrative, keep front and center that momo gurus’ job is to run up the stock market under the disguise of analysis.
- Jamie Dimon, the CEO of JP Morgan (JPM), is the most respected banker in the world. Moreover, he has access to a large amount of data as JPM is the largest bank in the U.S. Dimon is saying that a recession is not “off the table.” According to Dimon, the world is expecting a 70% – 80% chance of a soft landing. Dimon said, “The chance of a soft landing in the next year or two is half that. The worst case would be stagflation.”
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Meta (META), Nvidia (NVDA), Microsoft (MSFT), and Tesla (TSLA).
In the early trade, money flows are neutral in Apple (AAPL).
In the early trade, money flows are negative in Alphabet (GOOG).
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 *** 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.
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 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 $2166, silver futures are at $24.38, and oil futures are at $77.44.
S&P 500 futures are trading at 5137 as of this writing. S&P 500 futures resistance levels are, 5210, 5256, and 5400 : support levels are 5020, 4918, and 4852.
DJIA futures are up 48 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 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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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.
