OPTIMISM ON PPI, WALMART EARNINGS, RETAIL SALES DATA FROM CHINA, AND BUFFETT INVESTMENT

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By Nigam Arora & Dr. Natasha Arora

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

Optimism

Please click here for a chart of Walmart (WMT).

Note the following:

  • There is optimism in the markets due to Producer Price Index (PPI), Walmart (WMT) and Home Depot (HD) earnings, Buffett’s investment in Taiwan Semiconductor (TSM), and retail sales data from China.
  • PPI came at 0.2% vs. 0.4% consensus. Core PPI came at 0.0% vs. 0.3% consensus. Stocks are moving higher on good PPI data.
  • The purpose of the Morning Capsule is to provide you with the big picture; it is not about an individual stock.  The chart of Walmart is being used to illustrate the state of the consumer as Walmart is the biggest retailer in the world.
  • The chart shows a jump in Walmart stock on earnings.
  • Here are the details of Walmart earnings:
    • Walmart reported earnings of $1.50 adjusted vs. $1.32 consensus.
    • Revenues came at $152.81B vs. $147.75B consensus.
    • As a sad commentary, Walmart also took $3.33B or $1.05 per share in charges for peddling opioids.
    • One of the problems with retailers has been inventory glut.  Walmart did well in the third quarter as inventory was up 13% year-over-year.  This compares with 25% in the second quarter and 32% in the first quarter.
    • Comparable sales in the U.S. rose 8.2% vs. 3.6% consensus.
    • Walmart is guiding comparable U.S. sales excluding fuel to be up 3% vs. 3.5% consensus.
    • Walmart is benefiting from inflation and higher income people who previously did not shop at Walmart now shopping at Walmart to save money.
  • For investors, it is noteworthy that Wall Street ignores charges such as the large charge Walmart took for opioids – this gives public companies a free pass to make mistakes and commit misdeeds and then simply write them off without any consequences to their stock price.
  • Home Depot also reported good earnings.  Here are the details:
    • Earnings of $4.24 vs. $4.12 consensus.
    • Revenues of $38.87B vs. $37.96B consensus.
  • Adding to the optimism is Warren Buffett’s $5 investment in Taiwan Semiconductor.  This indicates that Buffett thinks that Taiwan Semiconductor stock can survive a potential attack by China on Taiwan.
  • In the middle of all of the bullishness, investors should pay attention to credit card data from JPMorgan (JPM) that is showing deterioration. The report shows net credit losses of 1.19% vs. 1.15% last month and 30+ day delinquencies of 0.73% vs. 0.69% last month.
  • The conciliatory tone of the statements by China and the U.S. after the meeting between Biden and Xi is adding to optimism.
  • Online retail sales of physical goods rose 7.2% in the first ten months of the year according to China’s National Bureau of Statistics (CNBS).  CNBS previously reported a sales increase of 6.1% from January to September.  This equates to 15% sales growth in October.
  • Stocks in Hong Kong are up more than 4% on CNBS data.
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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 🔒 in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin bulls are doubling up, still believing that there are huge gains ahead for bitcoin.

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 $1779, silver futures are at $22.04, and oil futures are at $85.24.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 3950, 3860 and 3770.

 futures are up 195 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 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.

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You can determine your protection band 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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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.

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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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