By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Stagflation
Please click here for a chart of Amazon stock (AMZN).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of AMZN is being used to illustrate the point.
- The chart shows when Amazon earnings were released. Going into earnings whisper numbers had started ratcheting up. Along with the ratcheting up of whisper numbers, Amazon stock also ran up going into earnings.
- Whisper numbers are the numbers that analysts privately share with their best clients to drum up business. These whisper numbers are different from the published numbers from the same analysts. The best clients get the analysts’ best and latest assessment, while the public merrily uses stale numbers without an understanding of what is going on.
- Historically for a stock to run up after earnings, it has to report numbers better than the whisper numbers. Amazon’s numbers were better than the consensus but worse than the whisper numbers. The stock should have gone down, but the chart shows that the stock ran up because the momo crowd showed desperation to buy Amazon stock.
- Many investors do not realize that Amazon continuously loses money with the exception of AWS. Without AWS, Amazon is a money losing operation.
- Operating income from AWS was $5.1B, about 4% below the consensus.
- Operating income for the entirety of Amazon was $4.8B. This indicates that the rest of Amazon lost $300M.
- The chart shows that the stock fell when, during the conference call, it became obvious that AWS growth is slowing. In April, the growth rate in AWS is 500 basis points below the first quarter.
- It appears that Amazon is losing market share to Microsoft (MSFT).
- The price action in Amazon, Microsoft, Meta (META), and Google (GOOG, GOOGL) is showing that the momo crowd is desperate to buy megacap tech stocks. They have shifted into the same mode they were in in 2020 and 2021 – price does not matter; valuation does not matter; the only thing that matters is buying.
- Our decades of experience in the markets shows that in the long run, it is always a mistake to become desperate to buy stocks. The evidence is crystal clear – those who buy with self-discipline following a proven system come out way ahead in the long run.
- A significant amount of data has been released this morning. The data points to stagflation.
- PCE is the Fed’s favorite inflation gauge. Here are the details:
- Headline PCE came at 0.1% vs. 0.1% consensus.
- Core PCE came at 0.3% vs. 0.3% consensus.
- Lately, the Fed has been paying attention to the employment cost index. The employment cost index rose by 1.2% in Q1 vs. 1.1% consensus.
- Personal income and spending data shows that incomes continue to rise but consumers have stopped the spending binge.
- Personal income came at 0.3% vs. 0.2% consensus.
- Personal spending came at 0.0% vs. -0.1% consensus.
- The stock market would have fallen today but was rescued by the Bank of Japan. The Bank of Japan has decided to continue its stimulative policies. As a result, yields on bonds across the globe are falling. Falling yields are helping stocks, especially tech stocks.
- As an actionable item, the protection band offers the proper balance between various crosscurrents.
Europe Barely Skirts A Recession
Eurozone’s Q1 GDP came at 0.1% vs. 0.2% consensus.
Germany’s Q1 GDP came at -0.1% vs. 0.3% consensus.
The foregoing data shows that Europe has barely skirted a recession.
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 🔒 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 🔒 in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin is below $30,000.
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 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 $1994, silver futures are at $25.09, and oil futures are at $75.17.
S&P 500 futures are trading at 4145 as of this writing. S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.
DJIA futures are down 96 points.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold good, very long term, 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.
Traditional 60/40 Portfolio
Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.
Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.
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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.
