BUYING IN STOCKS AS SPECULATION OF BIDEN APPEASING SAUDI ARABIA BUILDS

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By Nigam Arora & Dr. Natasha Arora

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

Biden May Appease Saudi Arabia

Please click here for a chart of oil futures (CL_F).

Note the following:

  • The big concern for the stock market is inflation.  Rising oil prices are contributing to inflation.
  • The chart shows a spike in oil on the EU plan to partially ban Russian oil.
  • Leading up to the EU’s decision, the news was already built into the oil price.  Less knowledgeable investors bought on the news.  Smart money sold oil on the strength.
  • The chart shows a selloff in oil on the positive news.
  • Saudi Arabia and UAE are two big oil producers with spare capacity.  Historically both are US allies.  However, in recent years, Saudi Arabia has drifted closer to Russia.
  • Until now, Saudi Arabia resisted raising production to contain the oil price rise in collaboration with Russia.
  • The root cause of the relationship between Saudi Arabia and the US souring goes back to the murder of Jamal Khashoggi.  Khashoggi was a Saudi journalist working for the Washington Post. He was critical of Saudi policies.  Khashoggi was murdered inside the Saudi consulate in Istanbul, Turkey. Khashoggi had gone to the consulate to obtain documents for his planned marriage.  The CIA concluded that Khashoggi was murdered on orders from Mohammed bin Salman.  Salman is the crown prince of Saudi Arabia and the effective ruler.  Salman is the most powerful man in oil.
  • Biden has not had a good relationship with Saudi Arabia over the murder.
  • Yesterday, there was speculation that the US was looking at entering into a new security agreement with the UAE.  The inference was that as a result of the new effort, the UAE may agree to pump more oil.
  • As a full disclosure, ZYX Short gave a signal to short sell oil ETF USO.  The trade is now profitable.
  • The chart shows when the rumors started that to save the November election for the Democrats, Biden would set aside the moral implications related to the murder of Khashoggi and visit Saudi Arabia to appease Salman.
  • The chart shows that oil fell on the speculation.
  • OPEC is meeting today.  The chart shows a spike up in oil on a report that OPEC+ may increase oil production by 650K bpd in July.  The initial plan was to increase oil production by 432K bpd.  However, after the news of the potential Biden visit yesterday, speculation was building for an increase of 1M bpd.  Oil prices rose because the rumor of 650K bpd is significantly lower than 1M bpd.
  • The stock market has been rising in the early trade on the prospect of lower oil, and thus lower inflation.
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • The chart shows that the VUD indicator is orange on OPEC speculation.  This indication of net supply on positive news means that the price rise may not sustain and may reverse.

Microsoft

The Morning Capsule is about the big picture and not about an individual stock.  However, Microsoft (MSFT) is considered the safest stock in this market.  The rise in stocks this morning related to oil has been dampened on the news that MSFT has lowered its guidance.  MSFT sees EPS of $2.24 – $2.32 vs. $2.35 consensus for Q4.  The reduction in guidance is due to a stronger dollar.  Of course, as a regular reader of the Morning Capsule you are expecting many companies to lower guidance due to a stronger dollar.  We have shared this information with you in advance, and now it is coming true.

Jobless Claims

Initial claims came at 200K vs. 210K consensus.

Productivity

Q1 Productivity – Rev came at -7.3% vs. -7.5% consensus.

Q1 Unit Labor Costs – Rev came at 12.6% vs. 11.6% consensus.

Powell watches this data closely.  The data shows that a big component of inflation is getting worse.  

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 has fallen under $30,000, temporarily dampening the bullishness.

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 $1859, silver futures are at $22.19, and oil futures are $114.46.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.

 futures are up 35 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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This post was just published on ZYX Buy Change Alert.

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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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