Wage Growth Slows

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 that the stock market has moved up to the upper band of the support/resistance zone.
• If the stock market moves above the upper band, bulls will see that as validation of their thesis that the market is going higher and will attempt to run the market up to the upper support/resistance zone shown on the chart.
• For the first time in a long time, the jobs report is almost perfect, disappointing both bulls and bears.  However, bulls are taking comfort in slowing wage growth.  Here are the details:
  • Nonfarm PrivatePayrolls came at 220K vs. 200K consensus.
  • Nonfarm Payrolls came at 223K vs. 210K consensus.
  • Average work week came at 34.3 vs. 34.4 consensus.
  • Average hourly earnings came at 0.3% vs. 0.4% consensus.
• Since the momo crowd is in control, expect them to try to run up the stock market.
• In The Arora Report analysis, there is nothing in this report that will deter the Fed from keeping monetary policy tight. 
• There is significant Fed speak ahead. The Fed speak, if hawkish, may cause selling into the strength.
• ISM Non-Manufacturing data will be released at 10am ET.  This data has the potential to be market moving.
• As an actionable item, consider staying with the protection bands in the section below.

Europe

Eurozone December CPI came at -0.3% vs. 0.8% consensus.  Overall, inflation has significantly cooled in the Eurozone, but the core inflation is still troubling.  Core CPI came at 0.6% vs. -0.1% consensus.

The consumer in the Eurozone continues to spend.  Retail sales came at 0.8% vs. 0.5% consensus.

Taiwan

A U.S. war ship went through the Taiwan Strait, angering China.

The U.S. is also sending a delegation to Taiwan.

We previously shared with you that China is making conciliatory gestures toward the U.S.  However, the U.S. does not seem to be responding for the time being.

All of this may change when Secretary of State Blinken visits China.

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

Saudi Arabia is cutting oil prices as India and China are buying more oil from Russia.

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.

Genesis, a major crypto player, has laid off 30% of its staff and is considering bankruptcy.

Digital Currency Group, the parent of Genesis and the publication CoinDesk, has shut its wealth management subsidiary.

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 $1855, silver futures are at $23.88, and oil futures are at $74.79.

S&P 500 futures resistance levels are 3950, 4000, and 4200: support levels are 3770, 3630 and 3600.

DJIA futures are up 298 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 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.

Triple Whammy

Please click here for a chart of long bond ETF TLT.

Note the following:

• Investors need to keep a close eye on long term yields.  Rising yields work against the stock market rallying.
• Lately, yields have been giving an early indication of potential stock market moves.
• An easy way to keep track is with a chart of long bond ETF (TLT).  It moves inverse to the yield.
• The chart shows that the rally from the low led TLT to above support/resistance line in early December.
• The chart shows that the rally failed.
• The chart shows that there has been a rally attempt over the last few days but this morning the rally attempt appears to be failing.
• The chart shows that RSI just gave a sell signal.
• The momo crowd has been buying stocks in anticipation of a rally but they have now been hit with a triple whammy.
• The first whammy came from the FOMC minutes yesterday afternoon.  Please see yesterday’s Afternoon Capsule for details.
• The second whammy came in the form of ADP data this morning. ADP Employment Change came at 235K vs. 148K consensus. ADP data paints a very strong jobs picture in spite of the Fed raising rates and headlines of new layoffs such as 18,000 layoffs from Amazon (AMZN) and 8.000 layoffs from Salesforce (CRM).  Of course, layoffs are picking up now and the data is for December.
• The third whammy came in the form of weekly initial claims.  This data carries heavy weight in the ZYX Allocation Model with inputs in 10 categories.  This data is a leading indicator, and since it is reported weekly, it is more current.  
• Weekly Initial Claims came at 204K vs. 225K consensus.  This indicates that in the prior week, the number of people losing jobs went down.
• All of the foregoing is a prelude to the mother of all reports – the jobs report is to be released tomorrow at 8:30am ET.
• Where the stock market goes from here will come down to the data tomorrow.
• Knowing Wall Street’s positioning can give investors an edge.  Wall Street appears to be positioned for weak data tomorrow.  If the data is weak, expect a major rally. However, Wall Street’s positive positioning does not appear to be heavy.
• To learn more about positioning, listen to the podcast titled “Market Mechanics: Positioning.”

Russia

There is building unease on Putin deploying Zircon supersonic missiles on warships.  These missiles can fly at 11,265 km/hour, making it almost impossible to defend against them.

Momo Crowd And Smart Money In Stocks

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

Gold

Gold is falling on rising dollar.

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.

Silvergate (SI), once a traditional bank, bet its future on lending to crypto entities.  The momo crowd, in its excitement, ran up SI shares from $16 to $240.  Now, depositors are rushing to withdraw their money from SI. They have withdrawn $8.5B.  To cover these withdrawals, SI has been forced to sell its assets at deep discounts. SI lost $718M on selling the debt.  This loss is far greater than the cumulative profits the bank has made since 2013.

SI is laying off 40% of its staff.  The stock is back to about $16, falling 40% this morning.

The crypto company Wyre is shutting down.  Venture capitalists had valued it at $1.5B.

The foregoing illustrates how quickly the wealth artificially generated by cryptos is evaporating.  

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 $1838, silver futures are at $23.44, and oil futures are at $73.10

S&P 500 futures resistance levels are 3860, 3950, and 4000: support levels are 3770, 3630, and 3600.

DJIA futures are down 210 points.

Shooting The General

Please click here for a chart of Apple stock (AAPL).

Note the following:

• The Morning Capsule is about the big picture and not about an individual stock.  The chart of Apple (AAPL) is being used to illustrate the point.
• In bear markets, they shoot the generals last.  Apple is the biggest general there is.
• Before the generals are shot, they stage extremely strong bear market rallies.
• The chart shows an extremely strong bear market rally starting from the June low.
• The chart shows that on December 28, all of the gains from the bear market rally evaporated.
• The chart shows that on December 28, Apple stock undercut the low of June.
• The reason behind the late December selloff is that investors were taking profits in Apple to offset losses in other stocks for year end tax purposes.
• The chart shows that yesterday Apple made a lower low.  Please see the Afternoon Capsule for details.
• The chart shows an RSI divergence.  In plain English, this means that RSI went higher as the price went lower. This is a positive in the very short term.

Fed Minutes

Prudent investors are eagerly waiting for the Fed minutes.  The reason is that the Fed raised its inflation forecast for 2023 in spite of the recent data that inflation is cooling.  Fed Chair Powell said the reason was the inflation in labor wages in services.  However, the Fed’s complete reasoning has never been clear for raising its inflation forecast.  

We will be carefully studying the Fed minutes to gain insights, and we will share these insights with you as appropriate.

The Fed minutes will be released at 2pm ET.

JOLTS

JOLTS data, which shows job openings, will be released at 10am ET.  This is key data as the Fed is focusing on JOLTS.

ISM

ISM Manufacturing Index will be released at 10am ET.  This will give a good indication of the state of manufacturing.

Hope Strategy

The momo crowd buys ahead of key events on the hope strategy.  Today is no different.  The momo crowd is buying stocks ahead of the Fed minutes, JOLTS, and ISM.

In sharp contrast to the momo crowd, smart money is typically inactive ahead of key events because prudent investors understand that the events present risk.

More Layoffs

More layoffs are coming.  Salesforce (CRM), a major software company, will lay off 10% of its workforce.  CRM stock is shooting up.  This is going to show more managements that the way to run up their stocks is to lay off workers.  

France

There is encouraging inflation data from France. CPI came at -0.1% vs. 0.4% consensus. Inflation data from Germany has also been encouraging.

Eurozone PMI

There is also encouraging data in Eurozone Services PMI which came at 49.8 vs. 49.1 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.

Crypto bros do not seem to have learned much from losing huge sums in 2022.  Solana has surged in January, including 20% yesterday.  The surge is related to the airdrop of Bonk.  Bonk is a new meme coin.  Crypto bros love airdrops, even though they ultimately lose money from airdrops.  In an airdrop, a promoter distributes the coins that it created out of thin air for free or low cost.

Bonk shot up 24%.

Prudent investors need to look at the latest behavior of crypto bros with the knowledge that Solana is closely tied to FTX and Sam Bankman-Fried.

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 $1864 silver futures are at $24.42, and oil futures are at $74.95.

S&P 500 futures resistance levels are 3950, 4000, and 4200: support levels are 3770, 3630, and 3600.

DJIA futures are up 91 points.

More On Alpha

Please click here for a chart of  Nasdaq 100 ETF (QQQ) compared to S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The chart shows that over the three year period shown SPY has gained 18.38% and QQQ has gained 23.19%.
• The chart shows that QQQ has outperformed SPY by less than 5% but at a cost of much higher volatility. 
• The chart shows that at the beginning of 2022, QQQ had outperformed SPY by about 28%.  QQQ is heavily weighted in tech stocks compared to SPY.  Many investors’ portfolios are more like QQQ and less like SPY.
• The take home lesson from the chart is that in 2023 investors should focus on getting the highest return with the lowest volatility.
• Alpha is excess return relative to a benchmark.
• Beta measures volatility relative to a benchmark index.
• Investors are starting the year on an optimistic note by buying stocks.  However, in the early trade, the buying is mostly by the momo crowd and not by smart money.

PMI

Newly released Purchasing Managers Index (PMI) numbers across the globe are predicting economic contraction.  A PMI number of less than 50 is economic contraction.

• China’s Manufacturing PMI came at 47.0 vs. 48.0 consensus.
• China’s Non-Manufacturing PMI came at 41.6 vs. 46.0 consensus.
• Eurozone’s Manufacturing PMI came at 47.8 vs. 47.8 consensus.
• Germany’s Manufacturing PMI came at 47.1 vs. 47.4 consensus.
• UK’s Manufacturing PMI came at 45.3 vs. 44.7 consensus.
• India is a bright spot.  S&P Global Manufacturing PMI came at 57.8 vs. 54.3 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 🔒.  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 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 $1843, silver futures are at $24.55, and oil futures are at $79.89.

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

DJIA futures are up 166 points.