HOTTER PRODUCER INFLATION AND DECLINING RETAIL SALES – MOMO IN LA LA LAND, OIL DEFICIT PREDICTION

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By Nigam Arora & Dr. Natasha Arora

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

Hotter PPI

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 staying above the trendline.
  • As long as the stock market stays above the trendline, the momo crowd is going to continue to buy stocks.
  • The data just released shows that the momo crowd is in AI la la land and paying no attention to the data.  You may recall that The Arora Report was the first one to call that AI would be big and a fortune was to be made in AI.
  • The Arora Report has been heavily focused on AI, and as a result, Arora portfolios have done extremely well.  Having said that, prudent investors need to understand that when it is all said and done, AI has to prosper in the real world and not in a make believe artificial world.  Right now, the momo crowd is in AI la la land. 
  • Producer Price Index (PPI) shows that inflation is running hotter at the producer level than expected.  Here are the details:
    • Headline PPI came at 0.6% vs. 0.3% consensus.
    • Core PPI came at 0.3% vs. 0.2% consensus.
  • PPI feeds directly into PCE, which is the Fed’s favorite inflation gauge. The data released today shows that the Fed needs to be very careful before cutting rates.
  • As The Arora Report had correctly predicted, consumer spending is beginning to weaken.  The U.S. economy is 70% consumer based.  For this reason, prudent investors pay attention to retail sales.  Here is the latest retail sales data.
    • Headline retail sales came at 0.6% vs. 0.7% consensus.
    • Retail sales ex-auto came at 0.3% vs. 0.5% consensus.
  • Initial jobless claims came at 209K vs. 218K consensus. Initial jobless 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.  The latest initial jobless claims data indicates that labor conditions continue to be tight.  The Arora Report analysis is that labor conditions are tight on the low end but weakness is developing at the high end, especially in IT and finance.
  • The protection band may need to be adjusted please see the section below titled “Protection Band And What To Do Now.”
  • 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 Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Apple (AAPL).

In the early trade, money flows are negative in Tesla (TSLA) and Nvidia (NVDA).

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 International Energy Agency (IEA) has concluded that oil will face a supply deficit throughout 2024.  Previously a surplus was expected.  

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.

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Gold futures are at $2172, silver futures are at $25.23, and oil futures are at $80.47.

S&P 500 futures are trading at 5242 as of this writing. Note, the data is being switched to June futures from March.  S&P 500 futures resistance levels are 5256, 5400, and 5500: support levels are 5210, 5020, and 4918.

DJIA futures are up 128 points.

Protection Band And What To Do Now

Investors may consider moving to a slightly more defensive position within the protection band.  The protection band may need to be adjusted if the momo crowd starts losing control of the market.  

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.

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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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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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