PAY ATTENTION: THREE IMPORTANT COMPANIES SIGNAL A SLOWDOWN BUT MARKET MECHANICS ARE POWERFUL

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By Nigam Arora & Dr. Natasha Arora

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

Slowdown 

Please click here for a chart of Walmart stock (WMT).

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of WMT stock is being used to illustrate the point.
  • Walmart is the largest retailer in the U.S. For this reason, any outlook from Walmart is very important.
  • The chart shows that WMT stock has fallen after the release of earnings.
  • The chart shows that WMT stock is now below the prior breakout line.
  • Walmart reported good earnings, but the stock is falling due to Walmart providing a cautious outlook after it saw consumer spending slow.   Walmart primarily caters to the lower income segment of the population.
  • The Arora Report call for months has been that consumer liquidity would start shrinking at the end of October.  Yesterday’s retail sales data showed that The Arora Report call is spot on.  Today, caution from Walmart provides another data point showing that The Arora Report call has proven spot on.  
  • In addition to Walmart, two other important companies are indicating a slowdown in enterprise spending.
    • Cisco (CSCO), the biggest networking company, is indicating that enterprise spending is slowing down.
    • Palo Alto Networks (PANW), a big cybersecurity company, is indicating that even in cybersecurity, spending is likely to slow down.
  • We have been sharing with you that Wall Street’s earnings estimates are too high.  None of the three, new, important slowdown data points are a surprise to members of The Arora Report.  However, they are a surprise to Wall Street and most investors who are not members of The Arora Report. 
  • Will the stock market fall after seeing a slowdown from these three important companies?   The stock market always has crosscurrents.  The crosscurrent here pushing the stock market to the upside is a combination of several market mechanics.  We have been sharing these market mechanics with you and how they have impacted the stock market.  About two thirds of the market rise this year is due to market mechanics.
  • The market mechanic that is going to have the most impact on the stock market today is the 100:1 leverage in bonds.  Bond yields are moving lower on the slowdown reports.  Typically when the stock market is not afraid of a recession, when bond yields move lower, the stock market moves higher due to 100:1 leverage.  Since understanding market mechanics gives investors a big edge and details of market mechanics are kept close to the chest by Wall Street professionals due to their very high value, to help you, a new podcast titled “Market Mechanics: 100:1 Bond Leverage Can Trigger Major Stock Market Moves” is now live in Arora Ambassador Club. 
  • Initial claims came at 231K vs. 220K consensus.  The slowdown is not appearing in this data yet.  Initial claims is a leading indicator and carries 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.
  • 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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Magnificent Seven Money Flows

In the early trade, money flows are positive in Microsoft (MSFT), Alphabet (GOOG), and Apple (AAPL).

In the early trade, money flows are negative in Amazon (AMZN), Meta (META), Tesla (TSLA), 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) 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.

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.

Gold futures are at $1974, silver futures are at $23.92, and oil futures are at $76.24.

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S&P 500 futures are trading at 4518 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 down 64 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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