WEEKLY STOCK MARKET DIGEST: MOMO CROWD BUYS THE DIP IGNORING DIMON, POOR EARNINGS, AND TESLA TROUBLES

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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.’

DIMON SEES HEADWINDS – MARKET DROPS – MOMO BUYS THE DIP

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

Dimon Sees Headwinds

Please click here for a chart of JPMorgan (JPM) stock.

Note the following:

  • The Morning Capsule is about the big picture and not about individual stocks. The chart of JPM is being used to illustrate the point.
  • Early in the morning, the momo crowd was buying stocks, trying to run up the stock market.
  • The chart shows when JPM earnings were released.  The chart shows a drop in JPM stock.
  • JPM earnings are important for the following reasons:
    • JPM is the largest bank in the U.S.
    • JPM is the largest bank in the world by market capitalization.
    • JPM is the best managed bank in the world.
    • JPM has the strongest balance sheet of any bank in the world.
    • Jamie Dimon, CEO of JPM, has long been the best banker in the world.
  • JPM reported earnings of $3.57 vs. $3.07 and reported revenues of $34.5B vs. $34.3B. Bank earnings are very complex and there are a lot of details.
  • JPM stock fell because of comments from Dimon indicating significant headwinds ahead. 
  • Three other important banks BAC, WFC, and  also reported earnings.  The market is reacting negatively to all three earnings as of this writing.
  • UNH, the largest health insurer in the country, also reported earnings early in the morning.  The stock first fell on earnings, but the momo crowd is buying the dip.
  • Here is important The Arora Report analysis that all investors should pay attention to.  
    • Big bank stocks, such as JPM, BAC, and C, can go up 40% – 50% from here if there is no recession and interest rates stay high.
    • Big bank stocks can easily fall 20% – 30% if there is more than a shallow recession and interest rates fall.  
    • There is a big difference between the two scenarios.   
  • Just like the big variability in what bank stocks may do based on earnings, there is similar high variability in many other sectors in the market.
  • As an actionable item, all prudent investors should fully internalize that the 40-year-long secular bull market is over due to the four megatrends ending.  Going forward investors will need to behave differently than they have in the past to be successful.  Due to the high importance of this matter, we conducted a live event titled “A Forward Look At Investing 2023 – 2030.”  Prior to this event, the last timeThe Arora Report conducted a similar live event was in 2009, after The Arora Report gave a signal to back up the truck and buy stocks on March 9, 2009.  With the benefit of hindsight, March 9, 2009, happened to be the low from which an epic bull market started.  The record is clear – those who attended the live event in 2009 performed dramatically better compared to those who did not.  A recording of the live event is available in the Arora Ambassador Club.
  • Of note is that the momo crowd is aggressively buying the dip caused by earnings.
  • Earnings season is just starting.  There is a deluge of earnings over the next three weeks.
  • In addition to the resistance from the Fed to the momo crowd running up the stock market, the momo crowd will also have to face earnings.  So far, momo gurus have gotten away by claiming that earnings will be great.  Over the next three weeks, the hypothesis of the momo gurus will be tested.  We have been sharing with you for a while, in The Arora Report analysis, Wall Street’s earnings estimates are too high.  However, company managements are incentivized to report as high of earnings as they can.  Accounting standards give mangements a lot of flexibility.
  • In spite of this flexibility and the incentive to report higher earnings, sooner or later the day of reckoning will come.  For this reason, investors should have appropriate risk control measures in place, such as the protection band.

Tesla

It is important to keep an eye on Tesla (TSLA) stock because Tesla stock is a good indication of speculative sentiment.  TSLA stock is falling this morning on a report that overnight Tesla dramatically cut prices in the U.S.  The weighted average price cut appears to be about $10,000.

Layoffs

Crypto.com is laying off 20% of its workforce.

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 🔒 stocks in the early trade.

Gold

There is speculation that China has bought 100 tons of gold over a few days.

Gold is trading above $1900.

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 rose about $19,000 this morning before pulling back.

The Securities and Exchange Commission is suing crypto firms Genesis Global and Gemini Trust for selling unregistered securities offering interest rates of 8%.

Metropolitan Bank will stop supporting Crypto.com.

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 $1903, silver futures are at $23.79, and oil futures are at $78.76.

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

DJIA futures are down 301 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.

See also  STOCK MARKET REVERSES ON CHATGPT AND AUCTION EXCITEMENT

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.

CPI DATA GIVES AMMUNITION TO BOTH BULLS AND BEARS

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

Consumer Price Index 

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:

  • CPI data is giving ammunition to both bulls and bears.  Here are the details:
    • Headline CPI came at -0.1% month-over-month vs. 0.0% consensus.
    • Core CPI came at 0.3% month-over-month vs. 0.3% consensus.
  • Stock market bulls are encouraged because for the first time in awhile, the headline CPI is a negative number.
  • Stock market bears are encouraged because core service inflation is not coming down.
  • Philly Fed President Harker is out saying that a 25 basis point rise in Fed funds at the next meeting is appropriate.
  • There is more Fed speak ahead including St. Louis Fed’s Bullard and Richmond Fed’s Barkin.
  • Biden will speak about inflation at 10am ET.  It goes without saying that Biden will paint a positive picture of the economy and progress on inflation. Momo crowd buying may become aggressive on Biden’s speech.
  • Investors need to keep in mind that there has already been a significant rally in anticipation of softer CPI.
  • What happens next will depend on if a short squeeze starts.  If a short squeeze starts, expect further a rally in the stock market.  If a short squeeze does not start, expect a pullback in the stock market.  
  • In The Arora Report analysis, bringing inflation down to about 4% is relatively easy based on the Fed’s actions.  However, the Fed’s target is 2%.  Bringing inflation down from 4% to 2% is likely to be much more difficult. 

Jobless Claims

Initial jobless claims came at 205K vs. 210K consensus. This indicates that the jobs picture is staying very strong.

Earnings Floodgate

The earnings floodgate will open tomorrow with bank earnings.  Banks scheduled to report earnings tomorrow include  BAC, C, JPM, and WFC.

Softer Semiconductor Demand

TSM is the largest contract semiconductor manufacturer in the world.  Many semiconductors in Apple’s iPhones are manufactured by TSM.  For this reason, it is important to pay attention to what TSM says about semiconductor demand. TSM expects softer semiconductor demand due to a slowing economy.  TSM expects first quarter revenue to drop by 5%.

Layoffs

Alphabet’s health science unit Verily Life Sciences has laid off about 15% of its workforce.  This indicates that layoffs are beginning to spread to healthtech.

Momo Crowd And Smart Money In Stocks

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

Gold

Gold futures briefly crossed above $1900 but are pulling back as of this writing.

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 above $18,000.  It appears that whales are manipulating bitcoin higher to suck in retail investors.

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 $1893, silver futures are at $24.15, and oil futures are at $78.85.

S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 3950, 3860, and 3770.

DJIA futures are up 68 points.

 

WALL STREET POSITIONED FOR A SHARP RALLY AND A SHORT SQUEEZE

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

Positioning Ahead Of CPI

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 moved above the support/resistance zone.
  • The chart shows that the stock market has moved above the algo selling line in the early trade.  The algo selling line is in play only if selling based on CPI starts.  It does not have significance if the market starts moving up on CPI.
  • The chart shows that RSI is positioned for the stock market to go up.
  •  We previously shared with you that the CPI release tomorrow has the potential to be a binary event for the stock market.
  •  Knowing Wall Street’s positioning can give you a big edge.
    • Wall Street is positioned for both headline and core CPI to come below the consensus.
    •  Consensus for headline CPI is 0.0% month-over-month.
    • Consensus for Core CPI is 0.3% month-over-month.
  •  Investors should pay attention to month-over-month numbers and not year-over-year numbers.
  • It is a mistake to exclusively focus on year-over-year numbers, but this is exactly what mainstream media commonly does.  The reason is that they are not investors and traders.   Their job is to grab attention – saying inflation came at 6.5% catches a lot more attention than saying inflation came at 0.0%.
    •  Consensus for headline CPI year-over-year is 6.5%.
    • Consensus for Core CPI year-over-year is 6%.
  • To gain an edge, it is important to deeply understand positioning. Please listen to the podcast titled “Market Mechanics: Positioning.”
  • In sharp contrast to Wall Street’s positioning for a rally, institutional investors are defensively positioned.  
  • Many hedge funds are net short.  
  • The sum total of the foregoing is an explosive mixture that can cause a sharp rally driven by short squeeze if CPI comes better than expected.
  • Even though the recent data is indicating a 60% probability of CPI coming better than expected, run away from any guru claiming that they know what the CPI numbers are going to be.  The truth is that nobody outside of the government really knows.
  • The foregoing does not mean that you should throw caution to the wind.  
    • There is a 20% probability of CPI coming in line with the consensus.
    • There is a 20% probability of CPI coming worse than the consensus.
    • 20% is a small probability, but if it comes true, it can drive the market much lower.
  • Even if CPI comes better than the consensus, investors need to be mindful of the following:
    • In The Arora Report’s analysis, Wall Street’s earnings estimates are too high.
    • The Fed is likely to increase rates even if CPI is better than the consensus.
  • The protection band may change after the CPI numbers.  For the time being, the protection band is just right based on what is currently known and probabilities.
See also  MOMO BUYS STOCKS AHEAD OF FED MINUTES AND JOLTS – SHOOTING THE GENERAL

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

API crude oil inventories came at a build of 14.865M barrels vs. a consensus of a draw of 2.375M barrels.

Crude oil dropped on this data.

If EIA data, to be released at 10:30am ET, shows a similar build, it would raise serious concerns that the economy is slowing and oil demand is dropping.  

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 may quickly change based on rumors about CPI.  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 $1882, silver futures are at $23.91, and oil futures are at $75.54.

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

DJIA futures are up 45  points.

 

A BINARY EVENT FOR THE STOCK MARKET IS AHEAD

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

A Binary Event

Please click here for a chart of semiconductor ETF (SMH).

Note the following:

  • Semiconductors often lead and provide a clue in advance.
  • The chart shows that SMH fell below the support/resistance zone but quickly rallied back above the support/resistance zone.
  • RSI on the chart shows when SMH fell below the support/resistance zone, it became very oversold quickly.  Now, RSI has risen very quickly.
  • The foregoing shows that neither bulls nor bears are in charge.
  • The momo crowd is still very powerful, and momo gurus have been trying their best to run up the stock market.  However, at every turn, Fed officials slap them, and the stock market turns down.  For example, yesterday, the momo crowd was running up the stock market to over 300 DJIA points when Atlanta Fed President Bostic slapped the market.  DJIA ended negative.  Please see yesterday’s Afternoon Capsule for details.
  • The Fed is playing whac-a-mole with the momo crowd.  In The Arora Report analysis, investors should be careful in becoming too bearish, even though fundamentals warrant bearishness.  The reason is that if the Fed were to stop slapping the momo crowd, the recent behavior of the momo crowd shows that they will run the stock market up 20%, irrespective of the fundamentals. 
  • With the foregoing context, it is easy to understand the binary event that is ahead.  The binary event is CPI which will be released on Thursday, January 12 at 8:30am ET.
  • The consensus for CPI is 0.0% month-over-month.
  • The consensus for Core CPI is 0.3% month-over-month.
  • Investors should focus on month-over-month and not on year-over-year.  However, a large number of investors are mistakenly focused on year-over-year.  Momo gurus keep on talking about year-over-year numbers.
  • Powell is in Sweden saying that restoring price stability can require unpopular policy.  The event in Sweden is still ongoing as of this writing.

Japan

Japan saw the fastest pace of CPI acceleration in 42 years.  Core CPI came at 4.0% vs. 3.7% consensus.

Investors need to keep a close eye on how the Bank of Japan responds.  Bank of Japan actions impact the U.S. stock market because of the carry trade. 

Layoffs

Layoffs are spreading.  Coinbase (COIN) is laying off 20% of its workers in a second round of layoffs.

Expect significant layoffs in crypto companies.

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

CFTC is suing over $114M Crypto Swaps scam at Mango Markets.

Bitcoin is range bound.

Markets

Our very, very short-term early stock market indicator is 🔒, but it can turn 🔒 on momo crowd buying ahead of CPI.  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 $1879, silver futures are at $23.73, and oil futures are at $75.00.

See also  WEEKLY STOCK MARKET DIGEST: FED’S FAVORITE INFLATION GAUGE RISES THE LEAST SINCE 2021, ALLIANCE AGAINST CHINA

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

DJIA futures are down 51 points.

 

MCCARTHY WIN SETS UP A TOUGH DEBT CEILING CRISIS AHEAD

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

Debt Ceiling Crisis Ahead

Please click here for a chart of U.S. national debt.

Note the following:

  • Prudent investors need to look beyond a few months to be prepared.
  • The chart shows the national debt increase has gone parabolic.
  • For healthy stock and bond markets and a good economy, the pace of national debt rise is not sustainable.
  • Conditions have become ripe for a debt ceiling crisis ahead.
  • As a reminder, The Arora Report is politically agnostic.  Our sole job is to help investors.
  • The U.S. has become strongly politically divided on tribal lines with very few people paying attention to important issues from the perspective of what is in the best interest of the nation.
  • Both Democrats and Republicans have been responsible for the rise in the debt.  Here is the major difference between Democrats and Republicans these days on the issue of debt.  Most Democrat politicians almost always want to borrow and spend.  Most Republican politicians want to borrow and spend when they are in power but oppose borrowing and spending when Democrats are in power.
  • Kevin McCarthy has become the Speaker of the House after a tough fight with some conservative Republicans.
  • Conservative Republicans are going to demand McCarthy to take a stand against enacting a clean debt limit increase now that Republicans control the House.
  • This is going to set up a fight with President Biden and the Senate which is controlled by the Democrats.
  • The U.S. has avoided a debt limit crisis since 2011, but one is highly likely to occur in 2023.  
  • The U.S. Treasury is not disclosing when the present debt limit will expire.
  • In The Arora Report analysis, the most likely time for the debt ceiling crisis is August to October.
  • If both sides are not able to compromise, expect a major overhang over the stock market.
  • Setting aside the longer term concerns, the momo crowd is buying stocks in the early trade based on the momentum from Friday.
  • The jobs report and ISM Non-Manufacturing report has increased the probability of a soft landing and thereby reduced the probability of a recession.  We will be sharing more on this important subject with you as appropriate.  
  • Powell will be speaking tomorrow in Sweden at a symposium sponsored by Riksbank, Sweden’s Central Bank.  The topic of the symposium is the independence of central banks.  Powell is expected to indirectly hint at the Fed’ future course of action.  This is especially important after lower wage growth and slowing services from Friday’s data.  

Layoffs

Previously large layoffs have been mostly confined to tech companies.  We shared with you in advance that Goldman Sachs (GS) was likely to announce major layoffs.  Goldman Sachs will layoff over 3,200 people, over 6% of its workforce, this week.  Investors need to keep an eye on the potential of layoffs spreading across Wall Street.

Brazil

Supporters of former President Bolsonaro broke through security barriers and overran the Congress complex.  Brazilian police have cleared the protestors.  If there is a major drop in the Brazilian market, it will likely be a buying opportunity.    

Eurozone

The eurozone unemployment rate remained unchanged for November, sitting at a record low.  In theory, the European stock market should have reacted negatively to this news, but European stocks are higher, encouraged by the strong rally in U.S. stocks on Friday.

Rolls-Royce

In a sign that the wealthy are still on a spending binge in the U.S., in spite of the Fed’s rate hikes, on the strength of U.S. demand Rolls-Royce car sales hit a 119 year record.  As the stock market has come down, the expectation has been that spending by the wealthy would moderate.

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 above $17,000.

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 and bonds are range bound.

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 $1884, silver futures are at $24.10, and oil futures are at $75.92.

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

DJIA futures are up 113 points.

 

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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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