WEEKLY STOCK MARKET DIGEST: POSITIVE SENTIMENT APPROACHING EXTREME – COMPLACENCY TAKES OVER

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.’

POSITIVE SENTIMENT APPROACHING EXTREME – COMPLACENCY TAKES OVER

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

 Showing Complacency

Please click here for a chart of the CBOE  Volatility Index ().

Note the following:

  • ‘Stonks always go up’ – the belief started with the meme crowd and subsequently spread to the momo crowd.  Now it is spreading to all segments of stock market players with the exception of smart money.
  • VIX measures volatility based on S&P 500 () index options.   In plain English, VIX is known as the fear gauge of Wall Street.  The higher VIX goes the more the fear.
  • In practice, VIX goes up when market players expect the stock market to fall.  VIX goes down when stock market players expect the market to go up.
  • The chart shows that VIX has fallen to its lows.
  • The chart also shows ETF ().  You cannot trade VIX but you can trade .
  •  has a built-in decay.  Nonetheless, the chart shows a rapid drop in  in August.
  • The chart shows the drop in VXX is accelerating.
  • The behavior of VXX shows that the stock market players have almost uniformly concluded the market is going to go up and there is a complete lack of fear of the market going down.

Sentiment

At extremes, sentiment is a contrary indicator. When sentiment is extremely bullish, it is a sell signal.

Sentiment is not a precise timing indicator.  When sentiment turns extremely bullish, it does not mean that the stock market will fall the same day.  The sentiment needs to stay in the extreme zone for a while before the market falls.

Now the sentiment is very positive approaching extreme.

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🔒.

Gold

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

For longer-term, please see gold and silver ratings.

Oil

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

For longer-term, please see oil ratings.

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 $1765, silver futures are at $23.45, and oil futures are $69.06.

S&P 500 futures resistance levels are 4600  and 4900: support levels are 4400, 4318, and 4200.

DJIA futures are up 73 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 short-term bond funds 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.

NEW HOTTER INFLATION DATA, ANOTHER TOP FED OFFICIAL WAKES UP

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

Hotter Inflation Data

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

Note the following:

  • July Producer Price Index (PPI) came at 1.0% vs. 0.5% consensus.  PPI over the last year has moved up to 7.8%.  Remember that the Fed’s target for inflation is 2.0%.
  • July Core PPI came at 1.0% vs. 0.5% consensus.
  • These are very hot numbers and should be of concern to prudent investors. However, the momo crowd is dismissing these numbers as transitory.
  • The chart shows that even though the market continues to levitate, the price has fallen below the trendline.
  • The chart shows a dramatic RSI divergence.  In plain English, this means that as the price has gone up, the internal momentum of the market has weakened.

Another Top Fed Official Wakes Up

Even though the Fed continues to persist with its policy of reckless money printing, more and more Fed officials are waking up.  Mary Daly is the President of the San Francisco Fed.  She has long been dovish and supportive of Fed policies.  Now in an interview, she is saying that the Fed could start removing some of the stimulus by the end of the year due to the strong economic data.

We have previously shown that the Fed has been proven wrong on most of its predictions this year.  The momo crowd continues to have blind faith in the Fed but prudent investors should pay attention to the Fed’s track record of being wrong.

Momo Crowd And Smart Money In Stocks

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

Gold

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

For longer-term, please see gold and silver ratings.

Oil

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

For longer-term, please see oil ratings.

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 $1750, silver futures are at $23.30, and oil futures are $69.11.

S&P 500 futures resistance levels are 4460 and 4600: support levels are 4400, 4318, and 4200.

DJIA futures are up 40 points.

RELIEF RALLY ON NEW CPI DATA, BIDEN TO SEEK OPEC HELP

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

Heavy Buying On CPI Data

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

Note the following:

  • The chart shows when CPI data was released and subsequent heavy buying.
  • July CPI came at 0.5% vs. 0.5% consensus.
  • July Core CPI came at 0.3% vs. 0.4% consensus.
  • The data shows that inflation is running hot – 0.5% per month equates to 6.0% per year – the Fed’s target is 2.0%.  There is a relief rally in the stock market because the data did not come worse than the consensus.
  • The data shows that prices of used cars are moderating. To defend its policies, the Fed has repeatedly argued that prices of used cars would come down. The data today proves the Fed has been right about use cars.  However, nobody expected used car prices to keep on going up at 10% a month.
  • The Fed has used pre-owned cars as a strawman.  Inflation is likely to be sticky in wages and shelter costs.  Can you see employers coming to their employees and asking them to take a wage cut because the government says inflation is transitory?
  • As the day progresses, it will be interesting to see if smart money sells the rally.
  • 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 VUD indicator is positive as of this writing.

Afternoon Capsule

There will be no Afternoon Capsule today.

Momo Crowd And Smart Money In Stocks

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

Gold

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

For longer-term, please see gold and silver ratings.

Oil

Biden administration will call on OPEC to increase oil production in an attempt to stop gasoline price rise.  There are two ironic points that investors should make note of as these points may result in specific investment opportunities.

  • At a time when rising gas prices are of concern, Biden is doing everything he can to reduce the production of oil in the United States.  There would be no need to seek  OPEC’s help if the administration were to encourage domestic oil production.
  • The government says that there is no inflation or that inflation is transitory.  If the Biden administration truly believes this, why is there a need to seek  OPEC’s help?

API data showed a draw of 816K barrels vs. 1.050M barrels consensus.

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

For longer-term, please see oil ratings.

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 $1744, silver futures are at $23.35, and oil futures are $67.38.

S&P 500 futures resistance levels are 4460 and 4600: support levels are 4400, 4318, and 4200.

DJIA futures are up 71 points.

DON’T FALL FOR AGGRESSIVE MOMO STOCK PITCHES

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

Don’t Fall For The Pitches

Please click here for a chart of bank ETF ().

Note the following:

  • Investors are being pitched to buy aggressive momo stocks and sell conservative stocks.  The premise of the pitch is that conservative stocks are doing poorly and aggressive momo stocks are going great.
  • It is true that select momo stocks are doing well but that cannot be said for aggressive momo stocks as a group.
  • The chart compares large bank ETF  with the most aggressive momo stock ETF ().   represents conservative stocks.
  • The chart shows that reality is different from the perception that is being created.
  • Right now Wall Street is focused on the stock market going up with higher and higher projections from Wall Street banks. Sufficient emphasis is not being put on what will happen in a correction.
  • Take a look at the chart for the month of May. Bank stocks held up but aggressive momo stocks were crushed.

Productivity

Productivity came at 2.3% vs. 3.4% consensus.

Unit Labor Cost came at 1.0% vs. 1.11% consensus.

Momo Crowd And Smart Money In Stocks

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

Gold

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

For longer-term, please see gold and silver ratings.

Oil

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

For longer-term, please see oil ratings.

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 $1729, silver futures are at $23.26, and oil futures are $67.24.

S&P 500 futures resistance levels are 4460  and 4600: support levels are 4400, 4318 and 4200.

DJIA futures are up 15 points.

BUFFETT SELLS STOCKS, MONEY FLOWS INTO BITCOIN ON BAD NEWS

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

Buffett Sells Stocks

Please click here for a chart of Buffett’s company Berkshire Hathaway ().

Note the following:

  • The Morning Capsule is about the big picture and not about individual stocks.   is being used to illustrate the point.
  • Warren Buffett has been the most successful investor of our time.  Investors should pay attention to what he is doing with his money and not to what he is saying.
  • The chart compares BRK-B with S&P 500 ETF ().
  • The chart shows that BRK-B has lately done well when measured against S&P 500.
  • Buffett is known for buying stocks and holding them for a very long time with few exceptions.
  • BRK-B has a large portfolio of stocks including Apple ().
  • BRK-B is sitting on cash of over $140 billion looking to invest.
  • BRK-B is a public company.  Buffett has been under tremendous pressure from shareholders to invest the cash.
  • Did Buffett invest the cash?  Instead of investing in other companies, Buffett was a net seller of $1.2 billion of other stocks.
  • Buffett also slowed the buyback of BRK-B stock to $6 billion.  The expectations were for a much higher buyback.

Bitcoin

It is likely that the U. S. Congress will tax crypto transactions.  This is very bad news.  What does bitcoin do on this very bad news?  It is running up.

Investors need to understand that bitcoin trading is controlled by a small group of whales.   Bitcoin does what the whales decide to do.  Herein lies the big risk for bitcoin investors.

Unlike stocks and futures, trading in bitcoin is very opaque.

Momo Crowd And Smart Money In Stocks

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

Gold

There is selling in gold on concerns that the Fed is boxed and may be forced to pursue more sensible policies.  If the Fed makes a shift to more sensible policies, there will be less need for investments in gold.

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

For longer-term, please see gold and silver ratings.

Oil

Oil prices are plunging on the outbreak of the virus in China. 

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

For longer-term, please see oil ratings.

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 $1742, silver futures are at $23.86, and oil futures are $66.32.

S&P 500 futures resistance levels are 4460  and 4600: support levels are 4400, 4318, and 4200.

DJIA futures are down 59 points.

Markets can generate substantial wealth for knowledgeable investors. NOW YOU TOO CAN ALSO SPECTACULARLY SUCCEED AT MEETING YOUR GOALS WITH THE HELP OF THE ARORA REPORT. You are receiving less than 2% of the content from our paid services. …TO RECEIVE REMAINING 98% INCLUDING MANY ATTRACTIVE INVESTMENT OPPORTUNITIES,
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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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