RECORD PROFITS AT J.P. MORGAN – CHARGES AT BANK OF AMERICA DISAPPOINT; U.S. ATTACKS YEMEN – HOUTHIS VOW REVENGE

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By Nigam Arora & Dr. Natasha Arora

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

Produce Price Index

Please click here for a chart of J.P. Morgan stock (JPM).

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of JPM stock is being used to illustrate the point.
  • Earnings season has started in earnest.  The earnings reported this morning tend to have a major impact on the stock market.  Here are the details:
    • J.P. Morgan is the largest bank in the U.S. and the largest bank in the world by market cap.  For this reason, earnings and the chart of JPM are important to the entire stock market.
      • The chart shows the move on earnings.
      • The chart shows a massive rally in JPM stock from the October low.
      • The chart shows that JPM has made a new high.
      • RSI on the chart shows a divergence.  This indicates that the move up is overdone in the short term and a pullback may occur.
      • JPM stock first fell on earnings but then rose on the forecast.  JPM net interest income rose to a new record.  In plain English, net interest income is calculated by the interest earned on loans less interest paid out on deposits.  This is the seventh consecutive quarter of JPM reporting record net interest income.  JPM is forecasting that net interest income will be higher this year.
      • JPM is in the Core Model Portfolio in ZYX Buy from The Arora Report.   Long time members of The Arora Report have 410% gain on JPM.  Please see the Model Portfolio for the Buy Now rating, buy zone, and target zone.
    • On the surface, Bank of America (BAC) earnings are better than expected.  However in The Arora Report analysis, numerous special charges are disappointing.
      • BAC is also in the Core Model Portfolio in ZYX Buy from The Arora Report. Long time members of The Arora Report have a gain of 322% on BAC.  Please see the Model Portfolio for the Buy Now rating, buy zone, and target zone.
    • Wells Fargo (WFC) reported earnings less than expected.
    • Citi (C) reported better than expected earnings ex-special items.  Citi had forewarned about charges emanating from Argentina.
      • Citi is going to cut 20,000 jobs.
    • Delta Airlines (DAL), on the surface, reported earnings better than expected.  However, in The Arora Report analysis, earnings are disappointing due to rising costs.
    •  United Health (UNH), the largest health insurance company in the country, reported earnings better than expected.   However, in The Arora Report analysis, earnings are disappointing due to higher medical costs.
  • Unlike the Consumer Price Index (CPI), which came worse than expected, Producer Price Index (PPI) came better than expected.  Here are the details:
    • Headline PPI came at -0.1% vs. 0.1% consensus.
    • Core PPI came at 0.0% vs. 0.2% consensus.
  • In The Arora Report analysis, a major difference between CPI and PPI that investors need to focus on is that PPI is mainly determined by goods, whereas CPI has a large service component.  It is the inflation in services that is the problem.  In The Arora Report analysis, PPI is being helped by China.  See the section below titled “Deflation Continues In China.”
    • Yesterday, the U.S. along with allies attacked land targets in Yemen.  The purpose was to degrade Houthis’ capability to attack shipping traffic in the Red Sea.  Houthis, backed by Iran, are threatening revenge.
  • In The Arora Report analysis, this attack by the U.S. has increased the probability of the Middle East conflict becoming wider.  Prudent investors should stay alert. 
    • Oil and gold saw buying after the U.S. attack.
    • Tanker stocks are rallying after the U.S. attack on Yemen.  Stocks include FRO, DHT, SFL, and NAT.
  • 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.
See also  NEW HOTTER INFLATION DATA – MOMO BUYS THE DIP, FED BLUNDER SHOWS UP IN ROARING MEME STOCKS

Deflation Continues In China

CPI came at 0.1% month-over-month vs. 0.2% consensus.

Since the U.S. is a big importer of Chinese goods, inflation in the U.S. is coming down in part because of deflation in China.  

Magnificent Seven Money Flows

In the early trade, money flows are positive in Microsoft (MSFT).

In the early trade, money flows are neutral in Amazon (AMZN), Nvidia (NVDA), Alphabet (GOOG), Meta (META), and Apple (AAPL).

In the early trade, Money flows in Tesla (TSLA) are negative on price cuts in China.

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

Gold is being bought on the prospect of a wider Middle East conflict.

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

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

Oil

Oil is being bought on the prospect of a wider Middle East conflict.

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin (BTC.USD) has pulled back from a high of about $49,000 that it reached yesterday.  Bitcoin futures are trading at $45,875 as of this writing.

Some money is coming out of GBTC and going into other ETFs.  GBTC used to be a trust and is now converted to an ETF.  As a result, there are already billions of dollars in GBTC.

See also  DISNEY, UBER, STARBUCKS, AND MCDONALD’S SEND A POWERFUL SIGNAL TO INVESTORS BUT MOMO CROWD OBLIVIOUS

Some investors are short selling bitcoin miners such as MARA and RIOT and bitcoin asset holders like MSTR and putting the money in lower cost bitcoin ETFs.   Many other investors want to do the same thing but are not able to do it due to adverse tax consequences.

Markets

Our very, very short-term early stock market indicator was ***.  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 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 $2063, silver futures are at $23.54, and oil futures are at $73.92.

S&P 500 futures are trading at 4816 as of this writing.  S&P 500 futures resistance levels are 4826, 4852, and 4918: support levels are 4770, 4713, and 4600.

DJIA futures are down 43 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.

See also  WEEKLY STOCK MARKET DIGEST: BE FOREWARNED – AI EXUBERANCE SHOWS INITIAL CRACKS BUT POWELL'S ITCH PROPELLING MARKET HIGHER

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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This post was just published on ZYX Buy Change Alert.

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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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