BETTER INFLATION DATA FROM EUROPE AND U.S. BRINGING BUYERS INTO OVERSOLD STOCK MARKET

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By Nigam Arora & Dr. Natasha Arora

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

Better Inflation Data

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 the stock market has bounced from the bottom band of the top support zone.
  • The chart shows the stock market is at the top band of the top support zone.
  • RSI on the chart shows the stock market is oversold.  As we have been sharing with you, oversold markets tend to bounce.
  • The chart shows that the oversold stock market is bouncing on better inflation data from the U.S. and Europe.
  • PCE is the Fed’s favorite inflation gauge.  The data came slightly better than expected.
    • Headline PCE came at 0.4% vs. 0.4% consensus.
    • Core PCE came at 0.1% vs. 0.2% consensus.
  • In The Arora Report analysis, core PCE is very important; however, core PCE does not include energy and food.  The rising price of oil has a significant impact on lower income consumers.  For this reason, prudent investors should not disregard the rising price of oil, even though that is exactly what the market is choosing to do this morning. 
  • Eurozone inflation has cooled to its lowest point in two years.
    • Eurozone CPI came at 4.3% year-over-year vs. 4.5% consensus.  CPI came at 0.3% month-over-month vs. 0.5% prior.
    • Eurozone core CPI came at 4.5% year-over-year vs. 4.8% consensus.  Core CPI came at 0.2% month-over-month vs. 0.3% prior.
  • The potential government shutdown drama continues in Washington.
  • 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.

Japan

Bank of Japan engaged in unscheduled bond purchases.  The amount was not significant.  However, the operation was designed to send a message to speculators to stop short selling yen.  As we have been sharing with you, moves by the Bank of Japan can have a major impact on the U.S. stock market.  For this reason, it is important for prudent investors to stay in tune with the Bank of Japan.  

See also  FED’S FAVORITE INFLATION GAUGE DISAPPOINTS BOTH STOCK MARKET BULLS AND BEARS

China Sends Chills

China is sending chills across multinational corporations.  China is barring a senior executive from the U.S. based firm Kroll from leaving China.  Recently, China also barred a senior executive of Japanese investment bank Nomura from leaving China.

In The Arora Report analysis, the stock market is underestimating the risk emanating from China.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).

In the early trade, money flows are positive 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

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 (BTC.USD) is range bound.

Markets

Our very, very short-term early stock market indicator is ***.  Keep in mind two important factors today.  First, today is the last day of the quarter, and the last day of the quarter has many cross currents.  Second, today is a Friday, and short squeezes tend to occur on Fridays.  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.

See also  WEEKLY STOCK MARKET DIGEST: MARKET MECHANICS HAVE TAKEN OVER, SEASONALLY POSITIVE NOVEMBER UNDERWAY IN THE STOCK MARKET

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 $1891, silver futures are at $23.69, and oil futures are at $92.49.

S&P 500 futures are trading at 4365 as of this writing.  S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

DJIA futures are up 212 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.

See also  DEPLOY CASH AND REDUCE HEDGES, APPLE LOWERS GUIDANCE, HOURLY EARNINGS MODERATE

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 five 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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