WEEKLY STOCK MARKET DIGEST: DO NOT IGNORE THE RISK OF RECESSION AS THE STOCK MARKET RUNS UP

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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.’

SALESFORCE IN ARTIFICIAL INTELLIGENCE ERA, PERSONAL SPENDING RISES BUT INCOME FALLS, NEW INFLATION DATA

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

Quick Recovery

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 has quickly recovered most of August losses in the last five trading sessions.
  • The chart shows that RSI has quickly gone from oversold to overbought.
  • Today is the last day of the month.  Expect month end volatility.
  • Tomorrow, blind money will pour into the stock market. Blind money is the money that pours into the stock market on the first two days of the new month without any analysis and irrespective of market conditions.
  • Salesforce (CRM), an important software company that is also in the Dow Jones Industrial Average (DJIA), reported better than expected earnings.  There is excitement about Salesforce, as the company is now in the artificial intelligence era.  About one half of the gain in DJIA this morning is due to the rise in CRM.
  • The new data shows that personal income is falling but personal spending is rising.  How long can this continue?  Since the U.S. economy is about 70% consumer based and the recession has been postponed because of strong consumer spending, investors need to pay attention to this data.
    • Personal income came at 0.2% vs. 0.3% consensus.
    • Personal spending came at 0.8% vs. 0.7% consensus.
  • Both headline and core PCE came at 0.2% month-over-month vs. 0.2% consensus.  This is the Fed’s favorite inflation gauge.
    • Core PCE came at 4.2% year-over-year vs. 4.2% consensus.
  • Initial claims came at 228K vs. 235K consensus.  Initial claims data 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.
  • UBS (UBS), the giant Swiss bank, is reporting a record $29B profit.  UBS plans to layoff 3,000 people and generate $10B in cost savings by 2026.  The stock is jumping.
  • 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.

Green Shoots In China

Manufacturing PMI in China came at 49.7 vs. 49.4 consensus.

Non-manufacturing PMI in China came at 51.0 vs. 51.1 consensus.

The data is giving hope that the slump in China may be coming to an end.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA),), Alphabet (GOOG), Meta (META), and Apple (AAPL)

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

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 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 are ticking down, and bonds are ticking up.

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 $1972, silver futures are at $24.98, and oil futures are at $82.66.

S&P 500 futures are trading at 4533  as of this writing.  S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are up 132 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 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.

See also  AI HYPE MEETING REALITY, FED UNDER POLITICAL PRESSURE TO CUT RATES QUICKLY

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.

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 five 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.

 

IPHONE 15 LAUNCH, OPENAI AT $1 BILLION RATE, FOUR NEGATIVE DATA POINTS, INFLATION BACK IN EUROPE

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

iPhone 15

Please click here for a chart of Nasdaq 100 ETF (QQQ).

Note the following:

  • The chart shows that QQQ has moved decisively above the downward sloping trendline.
  • The chart shows that RSI has quickly gone from oversold to overbought.
  • Both of the foregoing are bullish behaviors.
  • In yesterday’s Afternoon Capsule, we shared with you two new negative data points for the economy.  We wrote:

The chart shows when consumer confidence and the JOLTS report were released.

  • Consumer confidence came at 106.1 vs. 116.0 consensus.

  • JOLTS job openings came at 8.825M vs. 9.5M consensus.

  • This morning there are two new negative data points for the economy:
    • The ADP employment change came at 177K vs. 195K consensus.
    • Q2 GDP-second estimate came at 2.1% vs. 2.4% consensus.
  • The rise in the stock market is due to three reasons.
    • Excitement about AI – OpenAI, the creator of ChatGPT, has reached a $1B run rate.
    • iPhone 15 will be launched on September 12.  Apple stock (AAPL) historically moves up going into the launch and sells off after the launch.  Since Apple is the biggest stock and has heavy weight in indexes, it has a disproportionate impact.
    • The new economic data points are weak.
  • Inflation is back in Europe.
    • In Spain, CPI came at 0.5% month-over-month vs. 0.4% consensus.
    • In Germany, flash CPI came at 0.3% month-over-month vs. 0.3% consensus.  Inflation accelerated in four German states.
  • 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.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Apple (AAPL).

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

In the early trade, money flows are mixed in S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.

Momo Crowd And Smart Money In Stocks

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

Gold

Gold is rising on weak economic data.  

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

API crude inventories came at a draw of 11.486M barrels vs. a consensus of a draw of 2.9M barrels.

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) ran up yesterday after GBTC’s victory against SEC in court.  This morning bitcoin is giving up some of yesterday’s gain as investors realize that the court victory does not automatically mean approval of a bitcoin ETF.

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 $1971, silver futures are at $25.24, and oil futures are at $81.61.

S&P 500 futures are trading at 4509  as of this writing.  S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are up 54 points.

 

IMPORTANT DATA AHEAD, TESLA TURNING ON MASSIVE NVIDIA CLUSTER, 10 DRUGS NAMED FOR PRICE CUTS

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

Important Data Ahead

Please click here for a chart of Nasdaq 100 ETF (QQQ).

Note the following:

  • The chart shows that Nasdaq 100 has pulled back after touching the low band of the resistance zone.
  • The chart shows that the stock market is consolidating around the downward sloping trendline.
  • The chart shows that RSI is neither overbought nor oversold.
  • In The Arora Report analysis, from a technical perspective, the stock market is positioned such that it is waiting for the new economic data that is ahead.
  • Important data is ahead.
    • JOLTS – job openings data will be released at 10am ET.
    • Consumer confidence data will also be released at 10am ET.
    • ADP employment change will be released on Wednesday at 8:15am ET.
    • Thursday will bring initial jobless claims, GDP-second estimate, personal income and spending, and most importantly PCE prices.  PCE is the Fed’s favorite inflation gauge.
    • On Friday, the mother of all numbers will be released – the jobs report.
  • Medicare has released the list of 10 drugs that it is targeting for price reduction.  All of the drug companies are expected to litigate.  The impacted drug companies are Bristol-Myers (BMY), Johnson & Johnson (JNJ), Merck (MRK), AstraZeneca (AZN), Novartis (NVS), Amgen (AMGN), AbbVie (ABBV), and Novo Nordisk (NVO).
  • In The Arora Report analysis, the list of 10 drugs is mostly in line with expectations, and as such, do not expect it to impact the stocks of these companies in a major way. 
  • Today, Tesla (TSLA) is turning on a massive Nvidia (NVDA) cluster consisting of 10,000 H100 GPUs.  The cluster will be used to train FSD (Full Self-Driving).  Tesla is also spending $1B to build its own Dojo supercomputer.
  • 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.
See also  WEEKLY STOCK MARKET DIGEST: WILL EXCITEMENT IN THE STOCK MARKET THAT DROVE S&P 500 TO ALL TIME HIGHS CONTINUE?

Shift

Many companies are pushing their employees to come to the office.  A shift away from working at home is taking place. The latest is Amazon’s (AMZN) CEO Andy Jassy warning remote workers, “It’s probably not going to work out for you.”  This has broader implications including on cities, office real estate, consumer spending, and travel.

Magnificent Seven Money Flows

In the early trade, money flows are negative in Amazon, Tesla, Nvidia, Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Apple (AAPL).

In the early trade, money flows are mixed in S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.

Momo Crowd And Smart Money In Stocks

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

Gold

There is a serious attempt underway to persuade retail investors to buy silver.  

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 (BTC.USD) is just below $26,000 as the trading volume is drying up.

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 $1943, silver futures are at $24.30, and oil futures are at $80.60.

S&P 500 futures are trading at 4439 as of this writing.  S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.

DJIA futures are down 40 points.

 

DON’T BUY INTO THE MOMO NARRATIVE THAT RECESSION PROBABILITY IS ZERO, CHINA PROPS UP STOCKS

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

Recession Probability

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 has pulled back after touching the low band of the mini resistance zone.
  • The chart shows that the stock market is consolidating slightly above the top support zone.
  • RSI on the chart shows that the stock market is neither overbought nor oversold and can go in either direction from here.
  •  Powell’s speech at Jackson Hole was about as expected.
  • This AI frenzy driven market was mostly focused on Nvidia (NVDA) earnings.  Please see prior capsules.  Now that Nvidia earnings are behind, the stock market is focused on momo gurus’ narrative of no recession, the recession probability is zero, and the economy is heading toward no landing.
  • As we have been sharing with you, lately the economic data has been very strong.  A recession has clearly been postponed for two reasons.
    • The consumer has continued to spend aggressively.  Consumer savings went up during the pandemic due to free money and other government programs.  This led to excessive consumer spending.  The consumer has had difficulty changing the habit of excessive spending.
      • Lower income households have now run down their savings and are maintaining their spending by borrowing.
      • Higher income households own stocks and houses.  They continue to spend because they feel richer as the AI frenzy has run up the stock market and house prices have held up due to lack of supply.  Since most homeowners with a mortgage have interest rates locked in below 4%, no one wants to sell their house as new mortgage rates are over 7%.
    • Excessive government borrowing and spending continues from the Inflation Reduction Act and the Infrastructure Act. Government spending is providing more stimulus to the economy than anticipated.
  • Start with Arora’s Second Law of Investing and Trading.  The second law states, “Nobody knows with certainty what is going to happen next in the markets.”  Follow with Arora’s Third Law of Investing and Trading, which states “Making investing and trading decisions based on probabilities is the only realistic and profitable approach.”
  • In The Arora Report analysis, the following are the probabilities going forward: 
    • Recession 45%
    • Soft landing 35%
    • No landing 20%
  • It is important for investors to keep in mind that the stock market is priced for no landing and zero percent probability of a recession.
  • The other important dynamic in the stock market is that a large number of investors now believe that a recession, interest rates, and the Fed do not matter due to investors’ enthusiasm for AI.  
  • Since so many members have been asking for a podcast on Nvidia and wanting to understand  deeply why it dropped in spite of extraordinary blowout earnings, you will be delighted to know that the podcast titled “Understanding Over-Ownership Gives You An Edge – King Nvidia Example“ is in post production and will be published soon.
  • 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.
See also  WEEKLY STOCK MARKET DIGEST: PRUDENT INVESTORS STAY ALERT, AI FRENZY TAKES CONTROL OF THE STOCK MARKET

China

We have been sharing with you that the Chinese government has been trying very hard to prop up its stock market.  The Chinese government cut the tax on stock trading for the first time since the great financial crash of 2008.  The CSI 300, the main index of Mainland Chinese stocks, jumped 5.5% at first, but then the gains started fading.  Investors should take note that everytime the Chinese government tries to prop up the stock market, the stock market first jumps and then gives up most of the gains.

In The Arora Report analysis, the reason the rallies are not sustained is that the economic data in China is weak.  

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).

In the early trade, money flows are mixed in S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.

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 🔒 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 (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 are ticking down, and bonds are ticking up.

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 $1944, silver futures are at $24.21, and oil futures are at $79.93.

S&P 500 futures are trading at 4432  as of this writing.  S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.

DJIA futures are up 161 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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