WEEKLY STOCK MARKET DIGEST: AUTO DELINQUENCIES HIT 2009 LEVEL, AGGRESSIVE BUYING IN TECH STOCKS ON GOOGLE LAYOFFS

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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.’

 

AUTO DELINQUENCIES HIT 2009 LEVEL, AGGRESSIVE BUYING IN TECH STOCKS ON GOOGLE LAYOFFS

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

Buying Tech Stocks

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 market is consolidating around the algo selling line drawn in red.
  • The algo selling line has become a battlefield as the momo crowd buys here but algos sell.
  • RSI has relieved its overbought condition and is now positioned to go either way.
  • There is aggressive buying in tech stocks in the early trade.  The buying is triggered by the news that Alphabet (GOOG), the parent of Google, is immediately laying off 12,000 employees or about 6% of its workforce.
  • Investors are becoming hopeful that tech companies will continue to announce more layoffs reducing their costs to maintain their earnings.
  • Auto loan delinquencies are hitting 2009 levels. Delinquencies are rapidly increasing and are now about 26% higher from a year ago. With all the tech layoffs, delinquencies are likely to accelerate.
  • As an actionable item, continue to follow the protection band shown below.

Japan

Japan’s Core CPI was up 4.0% year-over-year vs. 4.0% consensus.  This is the highest rate of increase since 1982.

Based on this data, there is intense speculation that the Bank of Japan (BOJ) will have to change its monetary policy.  When BOJ changes its monetary policy, it will have a major impact on markets across the globe.

Kuroda is retiring.  The new leader will have an opportunity to change course.

Germany

Germany’s December PPI came at -0.4% month-over-month.  On the surface, this seems like good news until one looks at the consensus.  Consensus was -1.2%.  PPI is driven lower by falling natural gas and oil prices.

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

Crypto broker Genesis has filed for bankruptcy but bitcoin is trading up on the news. This demonstrates the control whales have on bitcoin to manipulate it in a way that suits their needs.

Markets

Our very, very short-term early stock market indicator is 🔒.  On Fridays, there are two opposing forces.  Short sellers tend to be nervous and cover on the slightest move up – this leads to short squeezes. On the other hand, institutions that bought tactical positions tend to book profits on Fridays.  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 $1926, silver futures are at $24.03, and oil futures are at $81.13.

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

DJIA futures are down 24 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.

See also  APPLE CREATING OPPORTUNITY FOR INVESTORS IN UP AND COMING MANUFACTURING POWERHOUSE

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 stock 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.

MARKET PRICING IN 50 BPS INTEREST RATE CUT IN 2023

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

50 BPS Interest Rate Cut

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 backed off after briefly penetrating the trendline shown in cyan.
  • The chart shows that in the early trade the stock market has fallen below the algo selling line shown in red.
  • The chart shows that RSI is backing off from an overbought condition.
  • The stock market is now pricing in a 50 bps interest rate cut by the Fed in 2023.
  • The Fed is steadfast that it plans to maintain interest rates higher for longer.
  • The Fed is concerned about Burns’s blunder; the stock market does not care.
  • Yesterday, some in the market woke up to the reality that for the Fed to cut interest rates by 50 basis points, the economy will need to be heading towards a bad recession.
  • A bad recession will mean a hit to earnings.
  • None of the above suits momo gurus because it makes it harder to run up the stock market.
  • Momo gurus are preaching immaculate landing.
  • It is important for investors to understand in depth the concept of immaculate landing. We are working on a podcast on this important subject for Arora Ambassador Club members.
  • As an actionable item, consider continuing to follow the protection band given below and guidance on buy zones in the Afternoon Capsule.

Jobless Claims

Initial jobless claims came at 190K vs. 212K consensus indicating a strong labor market. This is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories.  Please click here to see the ten categories of inputs.

The Fed is focused on tightness in the labor market.  With the exception of tech and Wall Street, the labor market is staying strong.

Amazon is planning to lay off 18,000 workers in another round of job cuts.

Housing Starts

Housing starts came at 1.382M vs. 1.355M consensus.

Building permits came at 1.330M vs. 1.370M consensus.

Europe

Knot of European Central Bank (ECB) said that the ECB sees no signs of a slowdown in core inflation and plans several 50 bps rate hikes.

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

Crypto broker Genesis is set to file bankruptcy.

Bitcoin is range bound but below $21,000.

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 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 $1914, silver futures are at $23.41, and oil futures are at $79.70.

S&P 500 futures resistance levels are 3950, 4000, and 4318: support levels are 3860, 3770, and 3630.

DJIA futures are down 231 points.

 

STOCK MARKET INVESTORS ARE MISINTERPRETING NEW DATA ON INFLATION AND RETAIL SALES

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

What Recession?

Please click here for a chart of retail ETF XRT.

Note the following:

  • The U.S. economy is about 70% consumer based.  For this reason, prudent investors pay close attention to retail sales.
  • The chart shows a strong move up in retail ETF XRT so far in 2023.
  • The chart shows XRT made a higher low in December.
  • The chart shows XRT is at a critical point relative to the trendline.  A dip below the trendline will be negative.
  • The chart shows that XRT is approaching resistance.
  • RSI shown on the chart is overbought and flattening, indicating that upward internal momentum has stalled.
  • Retail sales during the all important holiday season did not hold up as well as bulls had hoped.  Bulls were hoping for better than consensus numbers.  The data just released shows worse than consensus numbers.  Here are the details:
    • Retail sales came at -1.1% vs. -0.8% consensus.
    • Retail sales ex-auto came at -1.1% vs. -0.5% consensus.
  • In the premarket, stocks initially jumped on better than expected Producer Price Index (PPI) data.  Here are the details:
    • PPI came at -0.5% vs. -0.1% consensus.
    • Core PPI came at 0.1% vs. 0.1% consensus.
  • In The Arora Report analysis, we were expecting better than consensus PPI numbers.  The reason is that there is a glut of goods for two reasons.
    • Retailers bought based on the trends during the pandemic.
    • Consumers binged on buying goods during the pandemic but have now shifted to services.
    • As a result of the foregoing, there is excess inventory in the system and prices are falling.
  • In The Arora Report analysis, investors need to focus on inflation in core services, especially wages outside tech and Wall Street. 
    • Wages in tech are falling, simply because large tech companies grew too fat.  Large tech companies were making so much money that they lost spending discipline.
    • Bonuses on Wall Street are likely to be reduced drastically compared to last year.
    • Outside tech and Wall Street, wages are sticky.
See also  WEAK SEASONALITY AHEAD IN THE STOCK MARKET BUT BULLS HAVE A GOOD ARGUMENT

40/60 Portfolio

Many traditional portfolios are 60/40 portfolios or a variant thereof – 60% stocks and 40% bonds.

The Arora Report call going into 2022 was to not hold any bonds.  As a matter of fact, our call was to buy inverse bond ETFs such as TBT and TBF.  Just like most of our macro calls over the years, that call went against the prevailing wisdom and turned out to be very profitable for our members.  

2022 was the worst year for bonds on the record.  The Arora Report members avoided the pain.  However, investors who were not members of The Arora Report lost big on bonds that they thought were going to protect their gains against losses in stocks.  

Now that bonds have fallen, inflation is receding, and there is a threat of a recession, it makes sense to look at bonds.  Many very intelligent and well informed investors are flipping the traditional 60/40 to 40/60 – 40% in stocks and 60% in bonds.

Many smart investors are buying 30 year bonds.

In The Arora Report analysis, the probability adjusted risk reward in such an approach is not favorable to take strategic positions.  When appropriate, with proper timing, it does make sense to take tactical positions in bond ETFs such as TLT.  To learn more about strategic vs. tactical, please scroll down in the Afternoon Capsule.

To see our present guidance on the 60/40 portfolio for those who want to stick to a 60/40 portfolio, please scroll down.     

Surprise From Japan

In a surprise, Kuroda dug in.  Bank of Japan (BOJ) left policy unchanged.  There was intense speculation that BOJ would change policy.  Stocks in Japan responded immediately with Nikkei 225 running up 2.5%.

UK

For the second month in a row, inflation in the U.K. came down.

Layoffs

In yesterday’s Afternoon Capsule, we shared with you that Microsoft was planning large layoffs.  About 11,000 employees and many more contractors are likely to be laid off.  Investors are excited and buying Microsoft stock on the news in spite of a downgrade and potentially lower revenues.

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

Whales are maintaining bitcoin above $21,000.

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 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 $1924, silver futures are at $24.36, and oil futures are at $81.82.

S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3680.

DJIA futures are up 57 points.

 

MARKET AT IMPORTANT TRENDLINE – DO NOT IGNORE DEBT CEILING

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

Trendline

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 market has moved up to the important trendline, shown in cyan.
  • The chart shows that the market has moved down the last four times it went up against this trendline.
  • Technically oriented investors will jump in with both feet if the trendline is decisively broken to the upside, or they will start shorting the market if the market starts backing off from here.
  • RSI on the chart shows that the market is overbought and is vulnerable to the downside.
  • Earnings season is in full swing.  To a large degree what happens to the market in the near future will depend on earnings and Fed speak.
  • On January 9, we shared with you that the fight over the debt ceiling is ahead.
  • In a surprise move Treasury Secretary Janet Yellen warned Congress that the country will hit the debt ceiling this Thursday.  The Treasury has enough resources to last until early June by taking special measures.
  • The debt ceiling issue has come to the forefront much sooner than expected.  So far, the market has ignored the move up in the timetable for a fight to increase the debt ceiling.
  • Investors need to remember that in 2011 Republicans threatened to not increase the debt ceiling.  As a result, Standard & Poor’s cut the U.S. credit rating.  S&P 500 fell 6.6%. 
  • Democrats are confident that since Republicans have a very thin majority in the House, they will be able to peel away a few Republicans to increase the debt ceiling.
See also  NATIONAL DEBT REACHES $33 T – PRUDENT INVESTORS CONCERNED BUT MOMO CROWD SAYS DEBT DOESN’T MATTER

Historic Shift In China

China is the world’s second largest economy.  What happens in China impacts stock markets in the U.S. and across the globe.  There is important news from China.

  • In a historic shift, China’s population fell for the first time in 60 years.  This has implications for the financial markets not only in China but across the world. As China’s population declines, wages in China will continue to go up. The world has come to rely on China for cheap goods because of low wages.  
  • China’s GDP grew by 3% in 2022 vs. 2.8% consensus.
  • Fourth quarter GDP grew by 2.9% vs. 1.8% consensus.
  • Retail sales fell by 1.8% in December from a year ago vs. a consensus of a decline of 8.6%.
  • Industrial production went up by 1.3% in December vs. 0.2% consensus.

All in all, the economic data from China is much stronger than expected.     

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

On Friday night when the liquidity had dropped, a whale(s) bought $4B worth of bitcoin futures using market orders.  This caused bitcoin to rocket.  The move up has been exaggerated by a vicious short squeeze.  It appears that over $300M worth of short positions have been liquidated.

It is common for bitcoin whales to engage in this type of behavior over weekends, taking advantage of the low liquidity.

Bitcoin has moved up over $21,000.

FOMO (fear of missing out) is kicking in among retail investors.  They are adding to their bitcoin positions.

The Reserve Bank of India Governor Das is calling for a blanket ban on cryptos.  He is equating cryptos to gambling instruments.

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 range bound.

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 $1916, silver futures are at $24.28, and oil futures are at $80.40.

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

DJIA futures are down 105 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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