CPI Angst

Please click here for a chart of services Consumer Price Index (CPI) less shelter.

Note the following:

• The chart shows that services CPI less shelter has come down on a month-over-month basis.
• The Fed is most concerned about services CPI less shelter for the following reasons:
  • The consumer is on a binge to consume services.
  • Job growth in services is very strong.
  • Wage hikes in services are proving to be sticky.
• Cleveland Fed’s model is predicting January Core CPI at 0.46% month-over-month and headline CPI at 0.63% month-over-month.
• In The Arora Report analysis, as we have written before, bringing inflation down to about 4% is an easy task; bringing inflation down from 4% to 2% may prove much harder.  If our analysis is correct, the Fed will end up keeping interest rates higher for longer.  Right now, the market is expecting as many as two interest rate cuts in 2023.
• After rushing headlong to aggressively buy stocks, yesterday midmorning, the momo crowd woke up to the possibility that CPI may come out stronger than expected. There is anecdotal evidence that there has been significant buying by retail investors on margin.  The momo crowd selling from yesterday is continuing in the early trade today.
• Investors who follow traditional technical analysis were rushing headlong to buy stocks on technical signals.  These technical investors were not envisioning yesterday’s selloff.  They are selling this morning on concerns that their signals might be false.
• Prudent investors should start with Arora’s Second Law of Investing and Trading: Nobody knows with certainty what is going to happen next in the markets.  After analyzing all of the data that gives us indications about CPI, in The Arora Report analysis, the probability of CPI coming better or worse than the consensus is about evenly split.
• Investors should keep in mind that if CPI is better than expected, the momo crowd will be back again, aggressively buying stocks.
• In The Arora Report analysis, the Fed is not going to be swayed by one month’s number coming better than expected.  The Fed is going to want to see numbers coming better for several months in a row.

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 🔒 gold in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

In a surprise, Russia is cutting its oil output by 500K barrels per day.  As a result, oil prices are rising this morning.

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

For longer-term, please see oil ratings.

Bitcoin

The SEC is cracking down on staking.  In staking, certain crypto holdings like Ethereum are borrowed from holders to validate crypto transactions.  Crypto holders get returns as high as 21%.

Mom and pop are attracted to staking for high returns without understanding that staking often ends up as a way for whales to fleece mom and pop.

Now, the SEC is cracking down on staking.  It has charged the popular exchange Kraken with selling unregistered securities.  In response, Kraken is shutting down its staking service in the U.S. but will continue to offer it outside the U.S.  Kraken is also to pay a $30M fine.

Bitcoin is lower on SEC crackdown on staking.

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 and bonds are range bound.

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 $1878, silver futures are at $22.15, and oil futures are at $78.84.

S&P 500 futures are trading at 4072  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 73 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

Positive Pattern

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 is a weekly chart to give you a longer term perspective.
• The chart shows an inverse head and shoulders pattern.  This is a bullish pattern. In our backtesting at The Arora Report, this pattern works about 70% of the time.
• The chart shows the measured target from this pattern.  The measured target is just below the all time high.
• There are many other traditional technical analysis indicators that are also on a buy signal.
• Keep in mind that traditional technical analysis no longer works as well as it used to.  This is the reason that The Arora Report has developed proprietary indicators that work much better in present day market conditions.
• RSI shown on the chart is giving a buy signal.
• The stock market is running up this morning on excitement created by Disney (DIS) and Tesla (TSLA).
• Disney is restructuring and will operate as three units.  Disney is also embarking on a $5B cost cutting program.  DIS stock is down from the after hour highs yesterday evening, but it is still up 5.6%.
• Excitement from TSLA stock is spilling over to other stocks.  The excitement in Tesla is due to TSLA stock crossing $200.  TSLA stock has doubled from its January 6, 2023, low.  Investors who sold TSLA stock about a month ago close to $100 are now aggressively buying because TSLA has crossed above $200.  Among the momo crowd, a popular strategy is to buy high in the hope of selling higher.
• As a full disclosure, The Arora Report target zone on Tesla, given well in advance, was $190.36 – $210.  TSLA is trading at $207.59 as of this writing in the premarket.
• Good earnings from European industrial company Siemens (SIEGY) are also adding to the positive sentiment.
• Right now the market is in the mode of good news is great news and bad news is good news.  For example, Jamie Dimon, CEO of the biggest U.S. bank JPMorgan (JPM), is warning against prematurely declaring victory against inflation.  Dimon is also warning that the Fed could raise interest rates above 5% if price hikes are sticky.  The market is taking Jamie Dimon’s comments as a positive because right now the mantra is to fight the Fed.
• None of the foregoing negates the fact that the Fed is still set to raise interest rates and continue with quantitative tightening.

Jobless Claims

Initial jobless claims came at 196K vs. 194K consensus. The stock market likes that the number has moved up from the prior 183K.

Layoffs

Disney is laying off 7000 employees.

Affirm (AFRM), the buy now pay later company, is laying off 20% 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

Gold has moved above $1900 on weaker 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

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 $1900, silver futures are at $22.55, and oil futures are at $77.81.

S&P 500 futures are trading at 4165  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 up 210 points.

No Landing

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 again moved above the upper band of the support/resistance zone.
• We previously wrote,

Even though bulls are disappointed that the market has not continued to go straight up and bears are taking comfort from this pullback, the fact is that such pull backs are often common in a strong bull run.  Is this a strong bull run or a head fake?  This is yet to be decided as there are many potential outcomes based on macro analysis. Those who have been reading the Morning Capsule regularly know that good macro analysis has worked well a vast majority of the time.

• More time is needed to know if this is a head fake or a strong bull run.
• We recently wrote,

The probability of an immaculate landing is only about 25%.

• The momo crowd is already moving past an immaculate landing.  Momo gurus are so encouraged by their success in running up the market that now they are talking about “no landing.”  In plain English, no landing means that the economy will grow at a robust rate, the unemployment rate will remain at decades’ low, and inflation will fall to 2%.
• There is a new economic theory developing that the Fed increasing interest rates and quantity tightening have no impact.
• Based on no landing, momo gurus are already talking about S&P 500 rocketing to 6000, about a 50% gain from here.
• Before getting sucked into this new economic theory, investors should revisit the last momo crowd economic theory fad Modern Monetary Theory (MMT). Here are the hallmarks of MMT:
  • Rising national debt does not matter and should not restrict government spending.
  • Negative interest rates and money printing have no adverse consequences.
  • Central banks should print more money, and the government should use the newly printed money to spend more.
• Our long time readers may recall that The Arora Report was among the very few to debunk MMT at a time when it was at the peak of its popularity in 2019 and 2020.
• How deeply had MMT become entrenched among the elite? Even after inflation started raging and MMT was discredited, a respected national newspaper published a lengthy glowing profile of an MMT proponent.  The author was drooling over the brilliance of this MMT proponent and appeared to be thanking her for making our lives better.
• The point of reminding you of MMT is to help you not fall prey to the new emerging economic theory. 
• Instead of falling prey to the new economic theory, for real, solid insights, consider listening to the podcast titled “Immaculate, Soft, Or Hard Landing: S&P 500 2500 Or 6000.”
• We have been reminding you of Burns’s blunder – Arthur Burns lowered interest rates when inflation came down only to see inflation resurge again.
• Inflation is coming down as expected, but the dangers are still ahead.  Let’s look at two pieces of data:
  • Lumber prices are up 32% in one month.  Lumber is a big component of the price of a new home.
  • Used car prices, after having fallen for several months, jumped at the fastest pace during the last month since November 2021.
• As an actionable item, consider paying attention to the protection band.  When various scenarios and probabilities are taken into account, the protection band is just right for these market conditions.

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 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 $1889, silver futures are at $22.44, and oil futures are at $78.10.

S&P 500 futures are trading at 4154  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 104 points.

Powell Remarks

Please click here for a chart of the dollar index bullish fund (UUP).

Note the following:

• The chart shows that last year the dollar staged a strong rally.  This contributed to the stock market going down.
• The chart shows when the dollar pulled back.  This pullback contributed to the recent stock market rally.
• The chart shows a strong upmove in the dollar over the last three days.
• So far there has not been a corresponding down move in the stock market.  The reason is the dominance of the momo crowd and the momo crowd not doing any deep analysis.
• The latest rally leg in the stock market came after Powell’s press conference Wednesday last week.  Powell in his press conference was sensible and data-dependent as he should be.  The simple fact that Powell did not slap the momo crowd encouraged aggressive buying in the stock market.
• Powell’s remarks at the Economic Club of Washington are ahead at noon.
• In his press conference, in response to a question, Powell said that the market had a different forecast.  This particular answer encouraged even bearish money managers to hold their noses and start buying stocks. Will Powell clarify his answer today?  Will Powell encourage or slap the momo crowd today?
• Where the stock market goes from here depends on what Powell says today.
• President Raphael Bostic of the Atlanta Fed has reiterated his base case for rates to reach 5.1%.  So far, the market is ignoring Bostic.

Layoffs

There are early signs of layoffs spreading beyond tech.  Boeing (BA) will layoff 2000 people from HR and finance.

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 🔒.  Expect the market to open lower.  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 $1881, silver futures are at $22.28, and oil futures are at $75.40.

S&P 500 futures are trading at 4116  as of this writing.  S&P 500 futures resistance levels are 4200, 4318, and 4200: support levels are 4000, 3950, and 3860.

DJIA futures are down 134 points.

Immaculate Landing

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:

• At a time when those following traditional technical analysis and the momo crowd are putting all their eggs in the immaculate landing basket, and even bearish money managers are holding their noses and buying, prudent investors should consider not putting all their eggs in the immaculate landing basket.
• The probability of an immaculate landing is only about 25%. 
• The chart shows that in the early trade, the market has pulled back into the support/resistance zone.
• Even though bulls are disappointed that the market has not continued to go straight up and bears are taking comfort from this pullback, the fact is that such pull backs are often common in a strong bull run.  Is this a strong bull run or a head fake?  This is yet to be decided as there are many potential outcomes based on macro analysis. Those who have been reading the Morning Capsule regularly know that good macro analysis has worked well a vast majority of the time.
• RSI on the chart shows that the market has pulled back to relieve the very overbought condition.
• Prudent investors should keep an eye if the market drops below the low band of the support/resistance zone.  Such a drop will increase the probability that this stock market rally is a head fake.  On the other hand, a quick reversal above the top band will increase the probability of another stock market rally leg.
• The following are the major factors in the recent data that have dramatically increased the probability of an immaculate landing:
  • The expectation was that financial conditions would remain tight due to the Fed raising interest rates.  However, relentless buying in the stock market by the momo crowd have eased financial conditions. Financial conditions are looser now than they were before the Fed started raising rates.
  • During the pandemic, the government overstimulated the economy with free money or almost free money programs. The result of overstimulation was that consumers got in the habit of overspending. Habits are hard to break.  Consumers are continuing to overspend relative to their present incomes.
  • It was assumed that by now the money from free programs would have been spent, but that is not the case.  Checking account balances are still higher than what they were before the pandemic.   This piece of data indicates that consumers will continue to overspend at least for a while.
  • Technology companies have engaged in larger layoffs than expected.   This is going to help their earnings.
  • Normally layoffs impact the unemployment rate and jobless claims.  However, there are two different factors at play at this time.
    • Those affected by technology layoffs are disproportionately foreign workers on work visas.  Many such workers will end up going back to their home countries.
    • Many workers that are being laid off from tech companies are finding jobs in other sectors of the economy, albeit at lower salaries.
• Overnight shares in China and several Asian markets, with the exception of Japan, were lower on the U. S. shooting down China’s spy balloon.
• Selling from Asia continued to Europe and from Europe to the U. S. in the early trade.
• There are reports that China will retaliate against the U. S. for the shooting down of their balloon. There is speculation that China may shoot at U. S. planes that routinely touch Chinese airspace.  If China does retaliate, it will be a negative for the stock market.
• Of note is that Treasury yields are rising this morning.  Bulls will interpret it as further proof that immaculate landing is coming.  On the other hand, bears will interpret it to indicate the rally driven by the lower yields is over. 

Layoffs

Layoffs in the tech sector continue.

Dell, the PC maker, is laying off about 6600 employees, about 5% of its workers.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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.  Bulls are disappointed that whales did not take advantage of the low liquidity on Friday night to run it up.

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 $1886, silver futures are at $22.38, and oil futures are at $73.84.

S&P 500 futures are trading at 4118  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 173 points.