NO CAPITULATION – PPI BETTER THAN FEARED

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By Nigam Arora & Dr. Natasha Arora

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

No Capitulation

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:

  • Thank you for all of your great questions about capitulation.  Knowing about capitulation is extremely important because a capitulation provides a major buying opportunity.
  • The bottom line is that yesterday’s price action was not a capitulation.  Please see the post “ASK ARORA: TIME TO BUY — WAS THE PRICE ACTION THIS AFTERNOON A CAPITULATION?
  • Producer Price Index (PPI) is better than feared.  Here are the details.
    • Headline PPI month-over-month came at -0.1% vs. -0.1% consensus.
    • Core PPI month-over-month came at 0.4% vs. 0.3% consensus.
  • Investors need to pay close attention to PPI as prices at the producer level ultimately flow through to the consumers.
  • In our analysis at The Arora Report, these PPI numbers should provide some relief to the Fed – PPI data tilts the scale towards 75 bps rate hike and not 100 bps rate hike.  
  • The chart shows that the Arora call of a binary move ahead was made two days prior to over 1200 DJIA point drop in the stock market.
  • The price action today after the release of PPI is opposite to the price action yesterday on the release of CPI.
    • The momo crowd was buying after the release of CPI and ended up suffering huge losses.
    • Today the momo crowd is selling after the release of PPI.
    • Essentially, the momo crowd bought significantly higher and is selling significantly lower.
    • Smart money was aggressively selling on the release of CPI and came out ahead as the market fell by over 1200 DJIA points.
    • Today, after the release of PPI, smart money is lightly buying.  Our inference is that smart money buying today isn’t real buying but simply buying to cover short positions to book profits.  
  • The chart shows that the selloff yesterday was on heavy volume.  In contrast, the chart shows that the recent rally was on low volume.  This is a negative for the stock market.
  • The chart shows that the market is now at the lower trend line shown by the cyan line on the chart.  This is temporarily providing support.
  • The chart shows that RSI is in no man’s land.  This indicates that the market can go either way, but the RSI pattern has a slightly higher probability of a very very short term bounce.
See also  MOMO BUYING ON POTENTIAL DOUBLE BOTTOM IN THE STOCK MARKET

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial)  in the early trade.  Smart money is 🔒 in the early trade; the 🔒 is likely taking profits on shorts.

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 is range bound and holding above the $20,000 psychological support level.

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 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 $1714, silver futures are at $19.56, and oil futures are at $87.17.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.

DJIA futures are up 54 points.

Protection Bands And What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

See also  SMART MONEY SELLS THE STRENGTH IN STOCKS – POWELL RESOLUTE, MASSIVE LOSSES IN OIL

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.

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This post was just published on ZYX Buy Change Alert.

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See also  BULLS HOPING FOR FIFTH FED DAY RELIEF RALLY, MARKET IGNORES NUCLEAR THREAT

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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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