By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Raise Cash And Hedges
Please see the section “Protection Bands And What To Do Now” below.
Be extremely careful as the market is very volatile. If S&P 500 is below 3550 by the time you are able to act, consider raising cash only in small tranches. As a reference, S&P 500 had run up to 3644.75 due to aggressive buying by the momo crowd in the minutes leading up to the release of CPI.
It is too volatile to predict and the decisions need to be based on the new data as it comes in. The tentative plan is to start buying between S&P 500 3200 – 3250.
We previously shared with you that some institutions were heavy buyers of stock around S&P 500 3600. Expect many institutions to heavily buy stocks around S&P 500 level of 3400.
At the same time be aware that stops of many institutions and hedge funds are right under 3400. Hunt and destroy algorithms will attempt to take out these stops. If these stops are taken out, there may be panic selling. Our plan is to buy into the panic selling if panic selling occurs.
Remember that the foregoing is just one of many possible scenarios.
Nothing is cast in stone. Consider being as nimble as you can and staying very attentive to the Real Time Feeds.
Since a major buying opportunity may be ahead, if you have not already listened to the podcast titled “How To Know When The Stock Market Is A Bargain.” Consider listening to the podcast so that you have a deeper understanding.
As a further note of caution, expect momo gurus to have a new narrative and call for buying aggressively right here. If enough investors follow them, there is about 35% probability of a tradable bottom forming in the zone of 3400 – 3450.
Consumer Price Index (CPI)
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:
- Wall Street has been positioned for CPI to come below expectations.
- The momo crowd was aggressively buying stocks this morning prior to the release of the CPI number as momo gurus were urging their followers to buy stocks so that they were not left out from the big stock rally that was to ensue after the release of the CPI number. Of special interest is that the buying became extremely aggressive in the minutes leading to the release of the CPI number.
- Wall Street and momo gurus have been proven wrong again. The CPI number is much hotter than expected. Here are the details:
- CPI came at 0.4% vs. 0.2% consensus.
- Core CPI came at 0.6% vs. 0.4% consensus.
- The chart shows that S&P 500 has dipped into “not mother of support zones.”
- To give newer members a proper sense of what to expect, the following information is important. Before the pandemic, The Arora Report was the first one to call a big market drop. The call was proven to be spot on. After The Arora Report call, the market kept on running up for about two weeks and made a new high. Then, the market fell off the cliff to the “‘mother of all support zones” given by The Arora Report. After the market fell to the “mother of all support zones”, the market staged one of the biggest rallies ever.
- The foregoing should help investors understand the difference between “mother of support zones” and “not mother of support zones”.
- Jobless Claims came at 228K vs. 225K consensus.
- Semiconductors are the lifeblood of the new economy. Investors should pay attention to two pieces of news related to semiconductors. Please see the sections below.
Sales To China Halted
Due to new U.S. export controls, leading semiconductor equipment manufacturers such as AMAT, KLAC, LRCX, and ASML appear to be halting sales to China.
This is going to severely disrupt the Chinese semiconductor industry and ultimately China’s ambition to over take the U.S.
Prudent investors need to keep a watch on how China reacts.
This situation has significant long term consequences for investors. There will be many new opportunities as well as pitfalls. We will be discussing this situation in the live event “A Forward Look At Investing 2023 – 2030.”
United Kingdom
There are unconfirmed reports that Liz Truss may be forced to do an about-face on her plan to borrow and spend more. It seems to be finally sinking in that the narrative of borrowing and spending more will curb inflation is just plain wrong.
Taiwan Semiconductor
The Morning Capsule is about the big picture and not individual companies. Taiwan Semiconductor (TSM) is being addressed here because it is the largest contract semiconductor manufacturer in the world.
On the surface, earnings and projections look good – this is prompting the momo crowd to buy the stock in the early trade. However, looking below the surface there is a lot of bad news. TSM is planning to cut its capital expenditure by 10% to $36B compared to the budgeted $40B. TSM expects a sharp inventory correction due to falling sales of PCs and smartphones.
We have previously written extensively about the practice of double ordering in the semiconductor industry. Companies double ordered during the pandemic and now they have more semiconductors than they need. The only exception seems to be automotive, but the situation there may quickly change.
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 🔒 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
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 is being sold along with speculative stocks on hotter CPI.
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 $1657, silver futures are at $18.54, and oil futures are at $85.96.
S&P 500 futures resistance levels are 3600, 3630 and 3770: support levels are 3460, 3420 and 3390.
DJIA futures are down 483 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 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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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 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.
