FAST RISING YIELDS PUT PRESSURE ON THE STOCK MARKET, NEW EARNINGS DISAPPOINT

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By Nigam Arora & Dr. Natasha Arora

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

Fast Rising Yields

Please click here for a chart of  Snap (SNAP).

Note the following:

  • Yields are rising fast this morning putting pressure on the stock market.
  • There are two reasons for fast rising yields.  The Arora Report members had advance notice of both.
    • The Japanese yen has breached the psychologically important level of 150.  It is now trading at 151.9200 as of this writing in the pre-market.  This is a move of 1.2199%.  For a major currency, this is a very large move. Of note is that the move has happened in spite of threats of intervention by Japan and potentially a behind the scenes intervention.  We previously wrote,

Yen has lost half of its value since its prior peak.  Japan is threatening fresh intervention as yen falls past key 150 level.

Of interest is that both imports and exports hit record levels.

  • There is a delayed reaction to jobless claims.  We previously wrote,

Jobless claims came at 214K vs 233K consensus.  This is a very strong report.

In the morning, futures were down.  As the day progressed, the momo crowd ran up futures with aggressive buying.  Then came the strong jobless claims report throwing cold water on the momo gurus’ narrative that was running up stocks.  Since the jobless claims report, futures have pulled back.

  • Until market close yesterday, momo gurus’ narrative was that earnings were coming out better than expected.  Unlike most pronouncements momo gurus make, momo gurus were right on this one.  In the prior quarter, the momo crowd ran up the stock market 18% when the earnings did not come out as bad as feared.  The rally that started earlier this week was in part predicated on repeat of the bear market rally last quarter when earnings season started.
  • Since the market close yesterday, there are many earnings disappointments.  Here are a few examples:
    • The chart shows a gap down in SNAP.  SNAP stock has lost over 25% of its value after earnings release.  SNAP’s earnings were good, but they have no visibility into the latter half of the fourth quarter.  SNAP is an advertising based business.  One of the first things CEOs cut in a recession is advertising.  The inference from SNAP’s lack of visibility is that CEOs are beginning to cut advertising.  META, GOOG, and PINS are down in sympathy.
    • Hospital chains THC and HCA are significantly lowering their guidance.
    • American Express (AXP) is increasing its loan loss provisions.  Even though the company is issuing positive statements, investors need to ask a question, “Why would AXP increase loan loss provisions if it does not expect more people to stop paying their credit card bills?”
    • SIVB, the famous Silicon Valley bank, is giving a disappointing outlook.
  • Another day, same pattern.  Futures were significantly down this morning, but as time has progressed, momo buying has become very aggressive, especially in tech stocks.  Momo buying has significantly lifted the futures from their lows as of this writing.
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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 🔒 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 but below $19,000.

Markets

Our very, very short-term early stock market indicator is 🔒 but can quickly move 🔒 if momo buying becomes even more aggressive.  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 $1636, silver futures are at $18.37, and oil futures are at $84.20.

S&P 500 futures resistance levels are 3770, 3860 and 3950: support levels are 3630, 3600 and 3520.

 futures are down 32 points.

Protection Bands And What To Do Now?

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

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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

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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