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

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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.’

 

FED’S FAVORITE INFLATION GAUGE RISES THE LEAST SINCE 2021, ALLIANCE AGAINST CHINA

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

Personal Consumption Expenditures

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 is up against the low band of the support resistance zone.
  • The chart shows that the stock market has broken out above the downward sloping trendline shown in cyan.
  • RSI on the chart shows that it can go either way.
  • There is a major positive and a major negative crosscurrent in the market today.
  • On the positive side, the economic data is favorable for the Fed to pause.  Here are the details:
    • The Fed’s favorite inflation gauge Personal Consumption Expenditures (PCE) came at 0.1% vs. 0.0% consensus. This is the slowest rise since 2021.
    • Core PCE came at 0.3% vs. 0.3% consensus.
    • Personal spending came at -0.2% vs. -0.1% consensus.
    • Personal income came at 0.2% vs. 0.2% consensus.
  • We have previously shared with you that semiconductors are the leading sectors and investors should pay attention to semiconductors.  There are two pieces of negative news.
    • The Netherlands and Japan are about to join the U.S. in limiting exports of advanced semiconductor machinery to China.
    • Intel (INTC) gave the worst forecast in its history.

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 🔒 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 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 $1930, silver futures are at $23.68, and oil futures are at $82.11.

S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.

DJIA futures are up 3 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.

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.

 

BIG MONEY JUMPING ON IMMACULATE LANDING BANDWAGON – PICKING NEXT LEADERS

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

Immaculate Landing Bandwagon

Please click here for a chart of Ally Financial (ALLY).

Note the following:

  • The Morning Capsule is about the big picture and not an individual stock.  The chart of ALLY is being used to illustrate the point.
  • We previously shared with you in the podcast titled “Immaculate, Soft, Or Hard Landing: S&P 500 2500 or 6000” that Ally stock was being bought due to a short squeeze.
  • Yesterday, big institutional money was buying the stock even after a major up move.
  • Ally stock is up 33.6% year to date.
  • To understand what is happening, let’s start with the history of Ally.  In 1919, General Motors started GMAC to finance car loans.  During the Great Financial Crisis in 2009, General Motors filed for bankruptcy. To save GMAC, the U.S. government bailed it out to the tune of $17.2B.  Since not many people wanted to do business with a bankrupt company that was bailed out by the U.S. government, GMAC was rebranded first as Ally Bank, then as Ally Financial.
  • Ally is one of the largest automotive finance institutions in the country providing auto financing and leasing to 4.5M customers.
  • During the pandemic, many people bought new cars above the list price and used cars way above the pre-pandemic price.  This resulted in very high car payments. Data shows that more and more people are having difficulty making these car payments.
  • We previously wrote in the Morning Capsule on January 20,

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.

  • One of the reasons that The Arora Report has produced unrivaled performance is that we pay attention to hundreds of data points and attempt to interpret them without preconceived notions or prejudices.
  • The new data point is that there is significant buying by big institutions, not only in ALLY stock but also in several similar stocks.
  • These big institutions do significant analysis.
  • Why are these institutions buying these stocks?  If there is a recession, there will be more loan delinquencies, and these stocks will get hit.  A company like Ally has a history of being bailed out by the U.S. government because borrowers stopped making payments on auto loans.  That was only 14 years ago.
  • There are two reasons institutions are buying these stocks:
    • They are jumping on the bandwagon of immaculate landing.  In an immaculate landing, inflation will come down, the Fed will start cutting rates, layoffs will stop, employment will stay strong, the economy will grow, and consumers will maintain high incomes.
    • When a new bull market emerges after a bear market, it often has new leaders.  The leaders in the last bull market were stocks such as Amazon (AMZN), Microsoft (MSFT), Apple (AAPL), Google (GOOG), Nvidia (NVDA), and a large number of stocks where the business models were driven by free money. Now, institutions are looking ahead and searching for new leaders.  At least temporarily, they are picking value stocks, small cap stocks, credit card companies, auto lenders, European stocks, Indian stocks, and Chinese stocks as the next leaders.  
  • This new behavior by institutions is a reason to not become too bearish even though most of the economic data is bearish.
  • Remember, that the markets move based on money flows.  It is very important to pay attention to where money is flowing.
  • There is optimism in the stock market, especially in technology stocks, on Tesla (TSLA) earnings.  Tesla earnings were roughly in line with our expectations and the consensus. However, gross margins were lower. Historically, lower gross margins negatively impact TSLA stock, but this time the sentiment is simply too positive to care about gross margins.  In The Arora Report analysis, Tesla is sacrificing margins to generate higher volume.  In the long term, this is good for Tesla and bad for its competitors.  On the conference call, Musk was very positive, and the stock market liked what he had to say about production and demand in 2023.  The stock moved up after the conference call.
See also  INFLATION HOTTER THAN EXPECTED BUT MOMO GURUS HAVE A NEW NARRATIVE TO BUY STOCKS

Jobless Claims

Initial jobless claims came at 186K vs. 205K consensus.

This is a leading indicator and carries heavy weight in the adaptive ZYX Asset Allocation Model with input in ten categories. This model changes itself with market conditions.  This model has an advantage over most models used on Wall Street that are static.  The problem with static models is that they work for a while and then they stop working when market conditions change.

GDP

Fourth quarter GDP Advance came at 2.9% vs. 2.8% consensus.

This is a lagging indicator.

Durable Orders

Durable orders came at 5.6% vs. 2.9% consensus.  Durable orders ex-auto came at -0.1% vs. -0.2% consensus.

This is a very volatile series.

Layoffs

IBM is laying off 3900 employees.

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 over $23,000 and seeing retail buying.

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 $1936, silver futures are at $24.25, and oil futures are at $81.78.

S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950,  and 3860.

DJIA futures are up 103 points.

 

MICROSOFT ILLUSTRATES THE REALITY FOR INVESTORS, REMINDER FROM AUSTRALIA

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

The Reality

Please click here for a chart of Microsoft (MSFT)

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of MSFT is being used to illustrate a point.
  • It was well known to anyone who is doing very basic analysis that software sales to enterprises were slowing, layoffs would cause a hit to revenues as many corporations pay MSFT based on the number of users, and Azure growth would decelerate.  Azure is MSFT’s cloud offering.  MSFT heavily competes on this cloud offering with Amazon AWS  and Google Cloud.  With some exceptions, this has become a commoditized space with heavy price competition.
  • Contrary to the facts, based on hope strategy, the momo crowd aggressively bought MSFT stock going into the earnings report.  MSFT stock moved up from the 2023 low of $219.27 to $242.58 going into the earnings.
  • The momo crowd aggressively bought MSFT stock going into the closing minutes of the market yesterday based on hope strategy.
  • The chart shows when earnings were released.
  • The chart shows that after earnings were released the momo crowd aggressively ran up MSFT stock in heavy trading after hours to about $253.38.
  • The justification momo gurus found for running up the stock was that Azure growth came at 38% in constant currency vs. 37% prior guidance. It was easy to deduce with very basic analysis that buying on 1% higher growth in the last quarter was looking in the rearview mirror.
  • The chart shows when in the conference call MSFT said what was well known.  MSFT indicated that Azure growth was decelerating and software sales to corporations were slowing.
  • The chart shows that the stock fell as low as $238.75 after hours.
  • At the time the chart was made this morning in the premarket, MSFT was trading even lower at $235.92.
  • 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.
  • The chart shows that the VUD indicator in MSFT is orange, indicating net supply.
  • The foregoing illustrates the following reality of the stock market:
    • Macroeconomic conditions are worsening.
    • Technology sales to enterprises are slowing.
    • Technology companies are overstaffed.
    • The momo crowd does not do any analysis.
    • The momo crowd continues to buy on hope strategy.
    • The momo crowd controls the stock market in the short term.
  • To be successful, investors need to understand the reality.  This is the reason that sophisticated investors and money managers find the data we publish on the momo crowd and smart money very useful.
See also  OPPORTUNITIES FOR INVESTORS BEYOND AI AND NVIDIA – BIOTECH BREAKS OUT, NEW GDP DATA SHOWS PRESSURE

Reminder From Australia

At a time when momo gurus have convinced investors all over the globe that inflation is over and it is time to buy stocks, overnight there was a stark reminder from Australia.

Inflation in Australia rose to 7.8% in the fourth quarter of 2022 vs. 7.5% consensus. This is a 32 year high.

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

There are crosscurrents in oil.

API data showed that crude oil inventories rose by 3.378M barrels vs. 1.6M consensus. This data is bearish in the short term.

There are indications that OPEC+ will maintain its production level instead of increasing it on China reopening. This is bullish for 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 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 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 $1925, silver futures are at $23.64, and oil futures are at $80.29.

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

DJIA futures are down 291 points.

 

CHATGPT TRIGGERS VORACIOUS RISK APPETITE IN THE STOCK MARKET

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

Voracious Risk Appetite

Please click here for a chart of semiconductor ETF SMH.

Note the following:

  • In yesterday’s Morning Capsule, we shared with you the potential of a frenzy down the road related to artificial intelligence (AI). In the podcast titled “Immaculate, Soft, Or Hard Landing: S&P 500 2500 or 6000” recorded over the weekend, we discussed in more detail the potential of AI frenzy and excitement over ChatGPT.
  • The price action in semiconductors yesterday gave a glimpse of what can happen down the road related to AI frenzy.
  • The chart shows the big move in semiconductors.  The move was triggered by an analyst mentioning a couple of semiconductor stocks as beneficiaries of ChatGPT.
  • The chart shows that semiconductors cut through the resistance zone like a hot knife through butter on ChatGPT speculation.
  • The chart shows that semiconductors closed above the resistance zone.
  • The chart shows semiconductors are forming an inverse head and shoulders pattern.  This is a bullish pattern.
  • The chart shows that yesterday’s price action caused a break above the neckline.  In traditional technical analysis, this is bullish.
  • Keep in mind that ChatGPT has not yet generated any material revenue.
  • The voracious risk appetite triggered by ChatGPT spilled into other stocks, especially junk stocks, that have nothing to do with AI.  
  • In the analysis at The Arora Report, here is the key question: was the voracious risk appetite seen yesterday a one day wonder?  Yes, ChatGPT is promising, but there is inflation, the Fed, weakening economy, geopolitics, and earnings for the stock market to contend with. 
  • The earnings being released this morning, on the average, are below consensus. This is causing a slight pull back in the markets.
  • Microsoft (MSFT) earnings will be released after the close today.  Tesla (TSLA) earnings will be released after the close tomorrow.  Both earnings have the potential to significantly impact the market.
  • We will be carefully watching and listening to the conference calls to see if the hype overcomes the hard numbers.

Eurozone

Eurozone flash Services PMI came at 50.7 vs. 50.2 consensus.

Flash Manufacturing PMI came at 48.8 vs. 48.5 consensus.

These are leading indicators showing that the probability of a recession in Europe is lessening.

China

There are reports that Speaker McCarthy is planning a spring trip to Taiwan.  Investors need to look ahead and understand that if this trip takes place, it will further chill relations with China.  Lately, investors have been buying Chinese stocks like there is no tomorrow.

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

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.

See also  AN OPPORTUNITY IN SMALL CAPS OR A DANGER SIGN, ALL IMPORTANT CPI AHEAD

Bitcoin

Mom and pop are becoming aggressive again in buying bitcoin.  Bitcoin continues to levitate.  Bitcoin is trading at $22,861 as of this writing.

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 slightly 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 $1932, silver futures are at $23.54, and oil futures are at $91.81.

S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.

DJIA futures are down 154 points.

 

INVESTORS PAY ATTENTION: A NARROW PATH OPENS FOR IMMACULATE LANDING

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

Immaculate Landing

Please click here for a chart of semiconductor ETF SMH.

Note the following:

  • Semiconductors are often a leading indicator.
  • The chart shows that semiconductors are consolidating above the support zone but below the resistance zone.
  • RSI on the chart shows that semiconductor ETF SMH can go either way.
  • The economic data has changed quickly, opening a path for an immaculate landing.
  • An immaculate landing is a landing in which inflation comes down but the economy continues to grow at 2% or higher.
  • There have been many times in the markets when totally different events coincide, pushing the stock market higher than anyone would expect.
  • The potential event this time is artificial intelligence.  ChatGPT from OpenAI has broken through and caught the imagination of almost everyone in the technology world.  
  • OpenAI is affiliated with Microsoft (MSFT).  There is talk of MSFT making an additional $10B investment in OpenAI.  MSFT is planning on bringing ChatGPT to its cloud offering Azure.
  • MSFT will strive to rapidly bring ChatGPT to Office applications such as Word and PowerPoint.
  • LinkedIn may see ChatGPT applications soon.
  • MSFT may also bring ChatGPT to Bing in a challenge to Google (GOOG).
  • There is a code red alert at GOOG as they see the potential challenge from ChatGPT.  Google is reportedly redeploying resources to come up with an answer to ChatGPT.
  • There is the potential of an AI frenzy somewhat similar to the internet frenzy from 1995 – 2000.  During the late 1990’s, the stock market went up dramatically but crashed in 2000.
  • It is conceivable that an artificial intelligence frenzy develops coincident with an immaculate landing, pushing S&P 500 to 6000 over the next three to four years.
  • The foregoing is not the base case but an important possible scenario that investors should be aware of.
  • There is a  wide range of outcomes with fair probabilities.  For this reason, investors need to stay nimble and pay attention to the protection band.  The protection band is adjusted as probabilities change.
  • For those wanting next-level, in depth information, a podcast titled “Immaculate, Soft, Or Hard Landing: S&P 500 2500 Or 6000” is in post production and should be live shortly.

Europe

Rehn and Knot, policy makers at the European Central Bank (ECB), are favoring 50 basis point hikes at the next few meetings.

Layoffs

Spotify (SPOT) is laying off 6% of its workforce.

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 🔒 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

The gambit by the whales has worked.  Retail investors are buying bitcoin.  Bitcoin bulls are hoping for a run to $30,000.  Bitcoin is trading at $22,803 as of this writing.

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 $1922, silver futures are at $23.39, and oil futures are at $82.34.

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

DJIA futures are up 88 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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