WEEKLY STOCK MARKET DIGEST: A TRILLION DOLLAR PENNY STOCK

By Nigam Arora & Dr. Natasha Arora

Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report

Please scroll down for the section ‘Protection Bands and What To Do Now.’

A TRILLION DOLLAR PENNY STOCK

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

A Trillion Dollar Penny Stock

Please click here for a chart of Amazon stock ().

Note the following:

  • The Morning Capsule is about the big picture and not about individual stocks.  stock chart is being used to illustrate the point.
  • Penny stocks are known for wild moves.
  • Large blue chip stocks are known for stability.
  • The chart shows the large move in AMZN stock. To understand the magnitude of the move, see the price scale on the right hand side. This kind of move is a characteristic of penny stocks.  AMZN market valuation is over $1T.
  • The chart shows when AMZN earnings were reported.
  • 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 big up move was on very low magnitude in the VUD indicator.  This is highly unusual.  This indicates the super aggressiveness of the buyers willing to pay higher and higher prices.
  • The chart shows a large move down this morning in the pre market from the large up move yesterday evening.
  • The chart shows the large magnitude of the VUD indicator on the negative side during the pullback this morning, indicating heavy net supply of AMZN stock.
  • On the surface, AMZN earnings looked good, but when the gain from investment in electric vehicle company  is taken out and a forward looking analysis is done, earnings were not that good.
  • If the same earnings were reported a couple of days ago, the stock would have been down and not up.
  •  100 ETF  moved up strongly in after hours yesterday on AMZN stock move.  This morning  is not only giving up gains from yesterday evening, it has gone negative as of this writing.
  • Why did AMZN stock make such a massive up move on not so good earnings?  The reason is market mechanics.
  • When Meta () stock moved down, it created fear that led to selling in AMZN stock ahead of earnings.
  • Ahead of earnings, the following occurred in AMZN stock:
    • Wall Street positioning became negative.
    • New short positions were established as the stock fell.
    • Weak hands, especially among retail momo crowd, were washed out.
  • The foregoing conditions led to the violent rally shown on the chart.
  • It is important for investors, investment advisors, and money managers to develop a good understanding of market mechanics.  We illustrate market mechanics on an on going basis in small doses.  As a result, many of our long time subscribers have developed a very good understanding of market mechanics.  This morning we are getting emails from those who already understand market mechanics asking for a podcast to help them develop a deeper understanding of market mechanics with illustrations from AMZN, , and .  If you are interested in such a podcast, please write us.
  •  stock went up 60% after hours on market mechanics.

10 Year Yield Over 1.9%

The yield on the 10 year treasury note has jumped above 1.9% on a blow out jobs report.  Here are the details of the jobs report.

  • Nonfarm Private Payrolls came at 444K vs. 160K consensus; the prior was revised upwards to 503K from 211K.
  • The headline Nonfarm Payrolls came at 467K vs. 180K consensus.
  • The average work week came at 34.5 vs. 34.7 consensus.
  • Averaged hourly earnings came at 0.7% vs. 0.5% consensus.
  • The unemployment rate came at 4.0% vs. 3.9% consensus.

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 🔒 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.

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 $1802, silver futures are at $22.34, and oil futures are $92.02.

S&P 500 futures resistance levels are 4600, 4713, 4770 and : support levels are 4460, 4400, and 4318.

 futures are down 67 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 short-term bond funds 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.

 

THE MAIN CENTRAL BANK EVENTS ECLIPSED BY META MELTDOWN

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

Central Banks

Please click here for a chart of  S&P 500 ETF () which represents the benchmark stock market index S&P 500 ().

Note the following:

  • The chart shows that the market had moved above the breakout line from October 2021. The main events for today were rate decisions by Bank of England (BOE) and the European Central Bank (ECB).
  • BOE is hawkish.
    • BOE has raised interest rates again – the first back-to-back rate increases since 2004.
    • BOE raised its rates from 0.25% to 0.5%.
    • BOE expects inflation to accelerate above 7%.
    • The most important is that four of the nine members advocated for a larger rate increase.
  • ECB is taking a different path from the Fed and BOE.
    • ECB left interest rates unchanged.
    • ECB will continue buying debt. In plain English, ECB will continue to print money.
    • Inflation in the eurozone is running at 5.1% – the target is 2%.
  • The chart shows that the sum total of the central banks’ actions and the Meta () meltdown is that the market is still trading above the higher band of the top support zone.

Meta Meltdown

The Meta meltdown is causing a significant sell off.  Here are the key points.

  • Going into earnings, Wall Street was very bullish on .  There were 51 buys, 9 holds, and 2 sells.
  • We have been emphasizing that investors should understand positioning as it is very important.  Institutions were heavily positioned to the bullish side.
  • After earnings, about $200B market value has instantly evaporated.
  • This is the third time in a decade that FB missed earnings estimates.
  • The last two times, it turned out to be a buying opportunity.
  • The biggest surprise in earnings was a growth guide of 7% at the mid point vs. consensus of 16%.
  • FB is facing increasing competition from TikTok.
  • FB is emphasizing short video, and it will take time to properly monetize.
  • The metaverse is ahead, and FB will be a big player.

Amazon Earnings

 earnings are ahead and will have a major impact on the market.

There are concerns regarding the following:

  • Expenses may have risen more than the consensus due to inflation.
  • Comps are difficult.
  • Conversions may be lower.
  • AWS may not be as strong as the consensus.

 earnings are a significant risk event for the market, both to the upside and the downside.

Jobless Claims

Initial claims came at 238K vs. 245K consensus.

Productivity

Q4 productivity-PREL came at 6.6% vs. 2.7% consensus.

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.

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 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 $1805, silver futures are at $22.42, and oil futures are $87.65.

S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

 futures are down 116 points.

 

NASDAQ RIPPING – GOOGLE SHOWS THE WAY

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

 Ripping

Please click here for a chart of Alphabet ().

Note the following:

  • The Morning Capsule is about the big picture and not about an individual stock. The chart is of  to illustrate the point.
  •  is ripping in the pre market on GOOG earnings better than consensus and significantly better than whisper numbers.
  • Sentiment is becoming positive on GOOG announcing a 20:1 stock split.
  • Speculation is that the stock split will make it easier for GOOG to be included in .
  •  is moving higher on speculation that  will feel compelled to split its stock and compete with GOOG to be included in . This is adding to the gains in NASDAQ.
  •  and  earnings are ahead.  If these earnings are as good as GOOG, expect NASDAQ to recover recent losses.  On the other hand, if these earnings are not good, there is a strong probability of a retest of the recent NASDAQ low.  This is the reason for the signals to take partial profits on leveraged NASDAQ ETF  position.
  • The chart shows the prior high on GOOG.  The chart shows that GOOG fell in the Arora buy zone, giving those investors who were not in GOOG and were aggressive or growth oriented an opportunity to buy GOOG.  For more details of the buy zone and target zone, see the post from yesterday evening.
  • The chart shows that GOOG is gapping up above the prior high at a time when there are serious concerns about tech stocks and many investors are exiting tech stocks. 
  • Good earnings from  are also helping to create a positive sentiment.
  • There are nice gains on the  short term position and also on the  long term position.  As of this writing, the gain on  is 119%.  XLNX is being bought out by AMD.  See separate posts on AMD and XLNX for details and signals.
  • Expect bearish investors to sell tech stocks into the strength.
  • We will be carefully watching smart money actions.
  • There is a 35% probability that the selling by institutional investors who are following the business cycle script will overwhelm the early strong buying in NASDAQ and lead the overall market lower.
  • If the economy is entering the late cycle, investors need to be especially selective with tech stocks and tech ETFs.  For example, there may be a signal to trim the position in internet ETF .  There are likely signals ahead to short sell long duration tech stocks.  For those who want the next-level information, there is a detailed podcast on long duration stocks.  Our signals always take into account the business cycle.  We have been receiving many requests from investors who want a deeper understanding of business cycle investing.  In response, we are preparing a podcast on business cycle investing.

ADP

ADP is the largest private payroll processor in the country.  It uses its data to give a glimpse of the employment picture ahead of the official jobs report that will be released on Friday morning.

ADP came at -301K vs. +220K consensus.  This data is of concern if there is something more than Omicron to blame. Paradoxically, this data may bring buyers in thinking that the economy will become weaker and the Fed will be less aggressive in raising rates. 

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 OPEC+ meeting is taking place.  The consensus is for 400K bpd increase in production.

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

For longer-term, please see oil ratings.

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 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 $1803, silver futures are at $22.67, and oil futures are $88.96.

S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are down 16 points.

 

80% OF EARNINGS BETTER THAN ESTIMATES

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

Better Earnings

Please click here for a chart of  S&P 500 ETF () which represents the benchmark stock market index S&P 500 ().

Note the following:

  • In yesterday’s Morning Capsule we wrote:

Here is what to watch.

Technical – the character of the first rally and subsequent pullback. This is the most important thing to watch in the short term.

Fundamentals – watch earnings. 109 S&P 500 companies will report earnings this week.

Macro – jobs report on Friday.  Also watch statements by Fed officials.

  • Technical – the chart shows that the market closed above the prior first resistance zone.  Now this resistance zone becomes a support zone.  The chart shows that the rally has been on a reasonably high volume.  All of this is positive in the very short term.
  • Fundamentals – 80% of the earnings reported so far are better than expected.
  • Macro – the Fed talk has shifted.  The new talk is that the Fed may not need to be as aggressive as the gurus were saying last week and yesterday.
  • Many bearish gurus are calling for selling this rally.  As of this writing, it is not clear as to how much impact selling from their followers will have on the market today.

Blind Money

Today is the first of the month.  Blind money will pour into the market.  Blind money is the money that investors send to the market on the first of every month without any analysis and irrespective of market conditions.

Russia

France appears to be playing a pivotal role and is helping ratchet down the tension between Russia and the .S. over Ukraine.  This is positive for the stock market but negative for oil.

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.

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 $1803, silver futures are at $22.90, and oil futures are $86.96.

S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

 futures are up 35 points.

 

PERMABEARS, PERMABULLS, FLIP FLOPPERS, AND REAL ANALYSTS

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

Permabears Having A Field Day

Please click here for a chart of  S&P 500 ETF () which represents the benchmark stock market index S&P 500 ().

Note the following:

  • Broadly speaking, stock market analysts belong in one of four categories.
    • Permabears – they are having a field day with fearmongering. They have been wrong for years. Many have missed a 700% move in the market.
    • Permabulls – they were having a field day until the calendar turned to 2022.
    • Flip floppers – they turn very bearish when the market starts going down and turn very bullish when the market starts going up. They always have arguments to justify whichever way the market goes. Financial television channels love them and promote them.  The reason is that they tap into the emotions of the masses.
    • The real analysts – They are few and far between.  They have proven models based on probabilities.
  • During this period of market turbulence, keep front and center Arora’s Second and Third Laws of Investing and Trading.
    • The Second Law: Nobody knows with certainty what is going to happen next in the markets.
    • The Third Law: Making investing and trading decisions based on probabilities is the only realistic and profitable approach.
  • The chart shows that  is above the support zone and close to the first band of the resistance zone.
  • Here is the key question: Will the market break above the first resistance zone shown on the chart or will it break below the low shown on the chart in the very, very short term?  The probability of the former is 60%.  The probability of the latter is 30%.  There is a 10% probability of a range bound market in the near term. 
  • Here is what to watch.
    • Technical – the character of the first rally and subsequent pullback.  This is the most important thing to watch in the short term.
    • Fundamentals – watch earnings.  109 S&P 500 companies will report earnings this week.
    • Macro – jobs report on Friday.  Also watch statements by Fed officials.
  • Our long term call has been that this stock market is in a bubble, and the bubble is likely to get bigger.  More data is needed to change the call.
  • For those who want the next level information, a podcast titled “Market Turbulence: How to Navigate” is live in the Arora Ambassador Club.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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

Houthis fired another missile on the UAE.  The Israeli President was visiting the UAE on a historic visit.  The missile was intercepted.  No damage was caused.  However, the incident is running up oil.

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

For longer-term, please see oil ratings.

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 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 $1793, silver futures are at $22.48, and oil futures are $87.40.

S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.

futures are down 137 points.

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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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