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

New Narrative

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:

• Yesterday, the stock market staged a big rally on the aggressive buying by the momo crowd.
• The momo crowd was buying stocks on the strategy of hope. The hope strategy had two parts. We wrote in the Afternoon Capsule,

Biden will appease Saudi Arabia to bring down oil prices.  This will reduce  inflation.

Tomorrow’s jobs report will be really bad.  This will make it difficult for the Fed to continue to raise interest rates.

• Yesterday when the momo crowd was aggressively buying, we shared with you that smart money was inactive. We wrote in the Afternoon Capsule,

There is quite a contrast between smart money and the momo crowd. The momo crowd buys on hope like they are doing today. Smart money acts on data like the data that will be released tomorrow.

• This morning, the hope strategy has backfired. The jobs report is very good. Here are the details.
  • Nonfarm Private Payrolls came at 333K vs. 301K consensus.
  • Nonfarm Payrolls came at 390K vs. 325K consensus.
  • Unemployment rate came at 3.6% vs. 3.5% consensus.
  • Average work week came at 34.6 vs. 34.6 consensus.
  • Average hourly earnings came at 0.3% vs. 0.4% consensus.
• Expect momo gurus to come up with a new narrative to persuade their followers to aggressively buy stocks right here. As the day progresses, we will know what the new narrative is.
• The chart shows that the stock market is consolidating above the quasi double island reversal formation and the top support.  This is positive.
• The chart shows that the big rally yesterday was not on heavy volume.  This is a negative.
• The chart shows that RSI is overbought. Overbought markets tend to be vulnerable to pullbacks. This is a negative for the market.
• In our analysis at The Arora Report, the jobs report is going to do nothing to persuade the Fed to become less hawkish. The Fed knows that they made a huge blunder. For this reason they may not be inclined to make another blunder in the same direction.

Dissonant Behavior

The momo crowd is engaging in a notable dissonant behavior. On one hand, one of the two big reasons for their aggressive stock buying is that Biden is in the process of appeasing Saudi Arabia. As a result, oil prices should come down and that should help inflation.  On the other hand, the momo crowd is buying oil because oil is going up.

Nobody ever accused momo gurus of being cogent.

Tesla

The Morning Capsule is about the big picture and not about individual companies. Lately, many companies are beginning to announce hiring freezes and layoffs. Tesla (TSLA) is a very important, high growth company. Of special note this morning is that Musk says TSLA needs to cut 10% of its workforce.

Of special note is that job cuts are coming in crypto related companies. Coinbase (COIN) is announcing that it is rescinding job offers it had already made.

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

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 🔒 oil in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is coming under pressure on announcements of layoffs in the crypto industry. Bitcoin is trading below the psychologically important level of $30,000.

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 $1862, silver futures are at $22.31, and oil futures are $117.45.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.

DJIA futures are down 236 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 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.

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

Biden May Appease Saudi Arabia

Please click here for a chart of oil futures (CL_F).

Note the following:

• The big concern for the stock market is inflation. Rising oil prices are contributing to inflation.
• The chart shows a spike in oil on the EU plan to partially ban Russian oil.
• Leading up to the EU’s decision, the news was already built into the oil price. Less knowledgeable investors bought on the news. Smart money sold oil on the strength.
• The chart shows a selloff in oil on the positive news.
• Saudi Arabia and UAE are two big oil producers with spare capacity. Historically both are US allies. However, in recent years, Saudi Arabia has drifted closer to Russia.
• Until now, Saudi Arabia resisted raising production to contain the oil price rise in collaboration with Russia.
• The root cause of the relationship between Saudi Arabia and the US souring goes back to the murder of Jamal Khashoggi. Khashoggi was a Saudi journalist working for the Washington Post. He was critical of Saudi policies.  Khashoggi was murdered inside the Saudi consulate in Istanbul, Turkey. Khashoggi had gone to the consulate to obtain documents for his planned marriage.  The CIA concluded that Khashoggi was murdered on orders from Mohammed bin Salman.  Salman is the crown prince of Saudi Arabia and the effective ruler.  Salman is the most powerful man in oil.
• Biden has not had a good relationship with Saudi Arabia over the murder.
• Yesterday, there was speculation that the US was looking at entering into a new security agreement with the UAE. The inference was that as a result of the new effort, the UAE may agree to pump more oil.
• As a full disclosure, ZYX Short gave a signal to short sell oil ETF USO. The trade is now profitable.
• The chart shows when the rumors started that to save the November election for the Democrats, Biden would set aside the moral implications related to the murder of Khashoggi and visit Saudi Arabia to appease Salman.
• The chart shows that oil fell on the speculation.
• OPEC is meeting today. The chart shows a spike up in oil on a report that OPEC+ may increase oil production by 650K bpd in July. The initial plan was to increase oil production by 432K bpd. However, after the news of the potential Biden visit yesterday, speculation was building for an increase of 1M bpd. Oil prices rose because the rumor of 650K bpd is significantly lower than 1M bpd.
• The stock market has been rising in the early trade on the prospect of lower oil, and thus lower inflation.
• 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 is orange on OPEC speculation. This indication of net supply on positive news means that the price rise may not sustain and may reverse.

Microsoft

The Morning Capsule is about the big picture and not about an individual stock. However, Microsoft (MSFT) is considered the safest stock in this market. The rise in stocks this morning related to oil has been dampened on the news that MSFT has lowered its guidance.  MSFT sees EPS of $2.24 – $2.32 vs. $2.35 consensus for Q4.  The reduction in guidance is due to a stronger dollar.  Of course, as a regular reader of the Morning Capsule you are expecting many companies to lower guidance due to a stronger dollar.  We have shared this information with you in advance, and now it is coming true.

Jobless Claims

Initial claims came at 200K vs. 210K consensus.

Productivity

Q1 Productivity – Rev came at -7.3% vs. -7.5% consensus.

Q1 Unit Labor Costs – Rev came at 12.6% vs. 11.6% consensus.

Powell watches this data closely. The data shows that a big component of inflation is getting worse.  

Momo Crowd And Smart Money In Stocks

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin has fallen under $30,000, temporarily dampening the bullishness.

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 $1859, silver futures are at $22.19, and oil futures are $114.46.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.

DJIA futures are up 35 points.

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

Quantitative Tightening

Please click here for a chart of the Federal Reserve’s balance sheet.

Note the following:

• The chart shows the Fed’s balance sheet ballooning to about $9 trillion.  In plain English, the balance sheet is a fancy way of describing money printing.
• The chart shows the correlation between the Fed’s balance sheet and Nasdaq 100.
• The chart shows that the Federal Reserve’s balance sheet was under $1 trillion before the financial crisis of 2008.  In 2008, most investors lost one-half or more of the value of their portfolios.   Prior to the 2008 crash in late 2007, The Arora Report protection bands were at 100%.  In 2008, The Arora Report subscribers generated over 40% return.  This was accomplished by judicious use of inverse ETFs. Those who could short sell and had more opportunities such as the Corporate Bundle made even more.
• The chart shows that it took 10 years for Nasdaq to catch up with the rising Fed balance sheet.
  • The chart shows that the stock market threw a tantrum in late 2018 when the Fed turned hawkish.  The market quickly lost about 20%.
• The Fed did not have the spine to do the right thing, got scared by the market drop, and reversed its policy leading to another market run-up as shown on the chart.
• The chart shows that the Fed balance sheet ballooned when the pandemic started.
• The chart shows that the stock market followed the rising Fed balance sheet.
• The chart shows when the Fed indicated that it might engage in quantitative tightening (QT).  Quantitative tightening is the opposite of quantitative easing (QE) or money printing.
• The chart shows that in spite of rising inflation and even after the Fed indicated quantitative tightening, the Fed continued to print money resulting in continued rise in the Fed’s balance sheet.
• The chart shows that the stock market topped out when the Fed indicated quantitative tightening might be coming.
• A large number of investors and money managers believe that they are geniuses because they made money in the stock market. the reality is that the stock market rise was primarily due to the rising Fed balance sheet.  It was not the genius of investors and money managers but the Fed money printing that created profits for investors.
• Now the genius of investors is going to be tested.  Going forward, it is important for investors to follow a proven system such as ZYX Change Method.  It is also important for investors to understand the true nature of the markets.  What investors have experienced over the last several years is not the true nature of the markets.
• Investors keep on hoping that just like in 2018, the Fed will not have the backbone to do the right thing.   If investors’ hope turns out to be correct, the stock market will rapidly rise.
• The difference between 2018 and now is the raging inflation.
• The Arora Report was the first one to call early that the Fed policy would cause inflation. That call has proven spot on.
• In our analysis at The Arora Report, the Fed should vigorously fight inflation and not chicken out.  This will be the best course for the country and also the most profitable course for astute investors in the long term.

Blind Money

Today is the first day of the month.  Blind money is rushing into Wall Street causing the market to lift.

Yellen Admits

Treasury Secretary Yellen has finally admitted that she did not fully understand inflation.  She said that she had been wrong in claiming that inflation would not be a continuing problem.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks 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

There is speculation that the supply pact of OPEC+ may come to an early end.  This is due to Russia’s invasion of Ukraine.  OPEC+ is considering exempting Russia from the quota system.  The reason is that sanctions prevent Russia from increasing oil production.

Saudi Arabia and UAE have the spare capacity.  What is needed is their willingness to increase supply.  This is a bearish development for 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 is staying above $30,000 in bullish action.

Markets

Our very, very short-term early stock market indicator is 🔒 but can quickly turn 🔒.  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 $1849, silver futures are at $21.89, and oil futures are at $116.60.

S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.

DJIA futures are up 230 points.