By Nigam Arora & Dr. Natasha Arora
This post was published yesterday in The Arora Report paid feeds as an Afternoon Capsule.
To gain an edge, this is what you need to know now.
Two Fed Governors Dissent
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 when the FOMC interest rate decision was announced. The FOMC has left interest rates unchanged, as expected.
- The chart shows when Fed Chair Powell’s press conference started.
- The Arora call has materialized – in the Morning Capsule, we shared with you:
Powell may not succeed in getting a unanimous decision this time. There is a high probability that two Trump appointees Waller and Bowman may dissent.
- The Fed’s Waller and Bowman dissented, making this the first time two Fed Governors have dissented since 1993. Waller and Bowman preferred lowering rates by 25 bps.
- Here are the key points from Powell’s press conference:
- The Fed’s target remains at 2%.
- Inflation is running slightly above 2%, even when tariffs are taken into account. Services inflation is easing, but the prices of goods are moving up due to tariffs. Powell noted tariff costs will be passed along to consumers and inflation pass-through from the tariffs is slower than initially anticipated.
- The economy and labor market are “solid.” Powell noted the labor supply and demand are moving down but moving down together, leading to a low unemployment rate
- Large cuts are not likely unless weakness appears in the labor market.
- The impact of tariffs will be monitored. It could be short lived or persistent.
- The Fed has made no decisions yet about rates in September and will monitor the two rounds of inflation and jobs data that will be released between now and then. The Fed will continue to be data dependent.
- In The Arora Report analysis, from Powell’s press conference, the most important data point to watch going forward is the unemployment rate.
- 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.
- VUD indicator on the chart is mixed.
Potential After Hour Signals
Signals may be given after hours based on the news that will be released after hours. The best trades often occur outside regular hours. The reason is that almost all earnings are outside regular hours.
Buy signals will be in ZYX Buy. Short signals will be in ZYX Short.
Here is the list:
ALL
AMSC
ARM
CVNA
DXCM
EBAY
F
FE
FFIV
GH
HOLX
HOOD
META
MGM
MSFT
NTGR
PI
PSA
QCOM
RGR
UDMY
WDC
Money Flows
The momo crowd money flows since the Morning Capsule are *** (To see the locked content, please take a 30 day free trial).
Smart money flows since the Morning Capsule are ***.
Short squeeze money flows are ***.
A Special Note To New Members
Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very, very short term trades, consider following the momo crowd and not smart money.
Sentiment
Sentiment is ***.
Sentiment is a contrary indicator at extremes. In plain English, this means that when sentiment becomes extremely positive it is time to sell and when sentiment becomes extremely negative it is time to buy.
Close
Orders on close are ***.
There is merit to watching the pattern of market on close orders as they represent the day’s dominant net cumulative activity by many professionals and funds.
Gold
The momo crowd money flows in gold are *** since the Morning Capsule.
Smart money flows are *** in gold since the Morning Capsule.
Oil
The momo crowd money flows in oil are *** since the Morning Capsule.
Smart money flows in oil are *** since the Morning Capsule.
Buy Zones And Buy Now Ratings
The upside momentum in the stock market is strong, and the sentiment is extremely positive. However, the stock market is overbought and priced for perfection. Weak seasonality in September and October is ahead. If historical patterns hold true, it will be best to hold significant cash that will allow dip buying in September and October. With that in mind, the stock market depends, to a large degree, on President Trump, and President Trump is unpredictable.
Consider giving priority to tactical positions over strategic positions. Consider holding existing strategic positions. It is fine to add to strategic positions when they dip in the buy zone if the overall portfolio is the top half of the Arora Protection Band. Pay attention to individual posts if a position is marked as very long term, long term, or short term. If there is no mention of timeframe, the default is medium term. Please see Trade Management Guidelines to see definitions of timeframes.
Nibbling
Consider not nibbling at this time.
Nibbling refers to buying very small quantities, often in existing long-term positions with the intention of exiting these additions in the short term. It is similar to trade around positions but without specific signals.
The Afternoon Capsule is not published daily but only when conditions warrant it. The content below is unchanged and is to be used for reference as needed.
Sophistication
The character of the market has changed. Unfortunately, the last decade was an exception to the rule. Take a look at the chart of the US market for a 15 year period from 1967 – 1982 — the stock market made no progress.
Many investors are spoiled due to the decade-long bull market. A large number of investors believe that all they have to do is to buy and hold forever. Investors who do not believe in buy and hold forever say it is very simple – be all in or be all out. Both beliefs are wrong.
As the market turns volatile, many investors who do not understand the true nature of the market are jumping in with both feet without appreciating the risks, while other investors are getting whipsawed.
Risk and reward are two sides to the coin. It is important to consider both.
For your reference, we are pasting the following from your Getting A Running Start Guide,
Everything should be made as simple as possible but not simpler.
Albert Einstein
Strategic Vs. Tactical
All investors should consider bringing more sophistication to their investing and trading. It is important to clearly understand the difference between strategic and tactical calls. For your convenience, a prior post is pasted below.
We welcome your comments and questions. The law does not allow us to answer them individually. However, when a large number of subscribers ask similar questions, a post is done – typically starting with Ask Arora.
Strategy
Strategy defines medium to long term plan to achieve the highest risk-adjusted returns.
Here are some examples of strategic calls for illustration only.
- It is late cycle. Portfolios have to be organized for the late-cycle. Risks are much higher in the late-cycle compared to when a bull market is in an early stage.
- The world is awash in debt. The sovereign debt owed by governments and corporate debt owed by zombie corporations has dramatically increased. It is a bubble that is getting bigger waiting for a pin to prick it.
- Valuations are expensive.
- Fed policy is shifting.
- Earnings are rising.
Tactics
Tactics are small adjustments within the strategy to further enhance risk-adjusted returns.
Here are some examples of tactical calls.
- Weak hands temporarily washed out.
- Overbought condition temporarily relieved.
- Sentiment backing off from almost extreme bullish levels.
If You Could Pick Only One
We recognize that all investors have individual preferences. If you could pick only one, consider focusing on the strategy. Never focus only on tactics at the expense of strategy.
Cash And Hedges
We provide a range for cash and hedges. Most investors would be in the middle of the ranges. As such, they would not need to make any change. When a change is given only at the edges of the ranges, only the most active investors need to make a change.
Arora’s 12th Law
Arora’s 12th Law is applicable here: To be successful at investing and trading, flow with the new data, and stay nimble.
Bullet Proof Your Portfolio And Increase Your Returns
We consistently see that private investors, money managers, and investment advisors who have attended the Bullet Proof Your Portfolio and Increase Your Returns seminar do significantly better compared to those who have not attended the seminar.
Here are the four main reasons why this consistently happens to investors who attend the seminar:
- They start understanding the true nature of the markets.
- Develop a better framework to handle the true nature of the market.
- Tend to act with more conviction and with more comfort.
- Tend to develop better control over their emotions.
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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 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.
