WEEKLY STOCK MARKET DIGEST: SPOT-ON CALL FOR THE BOTTOM BEFORE THE BIG RALLY BUT LONG TERM RISKS REMAIN

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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.’

SIGNS OF A BOTTOM IN ONE DIMENSION BUT LONGER TERM RISKS REMAIN

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

Reduce Hedges

Hedges have become very profitable. It is time to book some profits.

Consider reducing short term hedges by 2 – 4%.

Reaction To The News

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 stock market is complex and multidimensional. In one respect, the stock market is beginning to show signs of a short term bottom – they are turning bad news into good news.
    • Apple (AAPL) will assemble only about 220M iPhones in 2022, less than the consensus of 240M – the stock market is not reacting negatively.
    • NVIDIA (NVDA) is guiding lower – the stock market is not reacting negatively.
    • DKS guided lower – after dipping to $58 yesterday in the premarket, the stock is trading at $79.50 in the premarket today.
    • WSM, M, and DLTR reported good earnings – the positive reaction in stocks is disproportionately large.
    • SNOW guided lower but long duration, richly priced, tech stocks are holding up.
    • Fed minutes were hawkish, but the momo crowd bought the news. Please read yesterday’s Afternoon Capsule.
  • There is important new economic data this morning that is negative, but the stock market is not reacting negatively.
    • Q1 GDP – Second Estimate came at -1.5% vs. -1.3% consensus.
    • Q1 GDP Deflator – Second Estimate came at 8.1% vs. 8.0% consensus.
    • Weekly jobless claims came at 210K vs. 210K consensus.
  • The chart shows that the market is now in the resistance zone. The market will need to decisively breakout to make bull’s case.
  • Bulls are pointing to the double bottom that the chart has traced. In our analysis, this is questionable because the time between the two bottoms is not enough.
  • The chart shows that yesterday’s rally was not on heavy volume. This is a negative.
  • Yields are pulling back on recession fears. 30-Year yield has fallen below 3%. This is a positive for tech stocks.
  • The sum total of the foregoing is summed up in the “Protection Bands And What To Do Now” section below.
  • Investors should make a distinction between tactical and strategic. In a strategic sense, there is a high probability that the market will go lower. From a technical point of view, there is a fair probability that the market is attempting for form a bottom for the very short term.
  • Right now, buying is coming in from the following sources:
    • Rebalancing by funds
    • Momo crowd that believes the bottom is in
    • Historic pre holiday buying
  • Remember that blind money will start pouring in on June 1.
  • A very important jobs report is ahead on June 3.
  • The true test of the market will be what happens after the June 3 jobs report.
  • The risk of stagflation is real. Stagflation can wreak havoc on your portfolio. For those who want next-level information, we are working on “Stagflation: Buffett’s Portfolio Part 3.”  The plan is to analyze 41 stocks in Buffett’s portfolio as an illustration to help you learn.

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 below $29,000 even though there is buying in speculative stocks.

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 $1842, silver futures are at $21.81, and oil futures are $111.12.

S&P 500 futures resistance levels are 4000, 4200 and 4318: support levels are 3950, 3860 and 3770.

DJIA futures are up 182 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.

 

CRUCIAL FED MINUTES, REBALANCING AND DURABLE GOODS

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

Fed Minutes

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

Note the following:

  • FOMC minutes will be released at 2pm ET. Investors are anxiously waiting for more details.
  • Buying by funds for rebalancing is helping the stock market from sustaining bigger losses. These funds are not buying because they did analysis and found stocks to be a good value at this time, but because this is an orthodox mechanical process.
  • Durable goods data is weak.
    • Durable Orders came at 0.4% vs. 0.6% consensus.
    • Durable Orders Ex-Transport came at 0.3% vs. 0.6% consensus.
  • The chart shows that QQQ, which represents mostly tech stocks, is staying below the trend line.
  • The chart shows that since the Arora call to raise hedges in March, countertrend rallies have failed.
  • The chart shows divergence on RSI. In plain English, this means RSI is going higher as the price is going lower.  This is setting up tech stocks for an explosive rally if good news comes along.
  • Yields continue to fall on recession fears. Bulls are using this as an excuse to buy. Please read yesterday’s Morning Capsule for details.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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.

Markets

Our very, very short-term early stock market indicator is 🔒 but can quickly swing 🔒. 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 $1847, silver futures are at $21.76, and oil futures are $110.71.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.

DJIA futures are down 114 points.

 

AN UNPRECEDENTED WARNING STOKES FEARS OF A RECESSION

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

Unprecedented Warning

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

Note the following:

  • One of the first signs that a recession may be coming is that companies start cutting advertising.
  • SNAP is not an important company for the big picture in the stock market, but its unprecedented warning is stoking recession fears.
    • SNAP derives its revenues from advertising.
    • SNAP issued its prior guidance on April 21, 2022.
    • Only a month later, SNAP is warning of a rapid deterioration in the macroeconomic environment.
    • SNAP is guiding both revenue and adjusted EBITDA below the low end of the prior guidance.
    • SNAP stock fell about 30%.
    • SNAP earnings are also putting downward pressure on GOOG, FB, PINS, TWTR, TTD, KIND, MGNI, PUBM, and ROKU.
  • The chart shows a significant drop in NASDAQ 100 ETF QQQ on SNAP earnings. The drop was less in S&P 500 and DJIA 100 but still a significant drop.
  • 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 there was a net supply of stocks after SNAP earnings, but the net supply did not last very long.
  • After the drop in the market, the VUD indicator has been mostly green, indicating net demand for stocks.
  • This indicates that the crowd that buys the dip is well and healthy.
  • The foregoing pattern is good for the short term in that buyers are stepping up to buy the dip. However, historically a bottom is not formed until the buy the dip crowd incurs such high losses that they become fearful. For example, if the VUD indicator instead of turning mostly green had stayed orange and the magnitude on the supply side had dramatically increased, that would have been an indication of a potential strong bottom.

PMI – The Leading Indicator

Purchasing Managers Index (PMI) is a leading indicator.

Eurozone’s Flash Manufacturing PMI came at 54.4 vs. 54.9 consensus, and Flash Services PMI came at 56.3 vs. 57.8 consensus.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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.

Markets

Our very, very short-term early stock market indicator is 🔒 but due to rebalancing it can quickly turn 🔒. Please read yesterday’s Morning Capsule. 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 $1858, silver futures are at $21.91, and oil futures are $110.54.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.

DJIA futures are down 169 points.

 

BUYING ON REBALANCING, TECHNICALS, AND BIDEN REVIEW OF MAKING CHINA RICHER

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

Making China Richer

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:

  • First and foremost, we are politically neutral. Our sole job is to help investors.
  • Trump was the only president who was concerned with the massive transfer of wealth from the U.S. to China.  To  reduce the outflow of wealth to China, Trump imposed tariffs on Chinese goods.
  • Lately, politicians have been urging President Biden to remove tariffs on Chinese goods. Such a move would provide instant gratification by reducing the cost for Americans addicted to cheap Chinese goods. What about the long term negative impact for the U.S.?
  • There is optimism and stocks are being bought on the plan for Biden to review the tariffs on Chinese goods and potentially remove or reduce the tariffs.
  • The chart shows there is buying on technicals.
  • We warned you in advance:

There are likely a large number of stops right under the top band of the support zone.  Putting stops at such an obvious place is like putting your cash in the middle of the street where everyone can see it for the purpose of protecting your cash.  Unfortunately, gurus continue to teach this way of putting stops and investors continue to get burned.

It is common for hunt and destroy algorithms employed by smarter traders to take out these stops.  Typically, once these stops are taken out, the market bounces.

  • The chart shows that the advanced warning from The Arora Report has proven spot on. Stops were taken out. Once the stops were taken out, the market bounced.
  • Many using traditional technical analysis are using Friday’s price action on the chart as a buy signal.
  • The chart shows there was a divergence on RSI. In plain English, this means as price went lower, RSI stayed higher. There is buying in stocks on this divergence.
  • Month-end rebalancing is ahead. Due to heavy losses by funds in stocks, funds are likely to heavily buy stocks between now and the end of the month to rebalance. Estimates of such buying range from $11 – 35B.  Such buying is not based on analysis because the stocks are about to go up but rather a mechanical approach by those who are not able to do great analysis.  
  • The Memorial Day holiday is ahead. Historically, there is positive seasonality as investors are typically in a good mood before a holiday and buy stocks.
  • Will all of these very very short term positives overcome the selling arising from a deteriorating macro picture?

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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.

Markets

Our very, very short-term early stock market indicator is 🔒 but can quickly turn 🔒.  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 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 $1855, silver futures are at $22.03, and oil futures are $111.49.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.

DJIA futures are up 285 points.

To take a free 30-day trial to paid services to gain access to more opportunities, please click here.

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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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