PCE Cools

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 S&P 500 ETF SPY is getting close to the low band of the support/resistance zone.
• The momo crowd was buying stocks going into the PCE data.
• The momo crowd bought on release of PCE data.  However, as S&P 500 futures approached 4100, significant selling came in.  Expect the momo crowd to buy any shallow dip.
• PCE is the Fed’s favorite inflation gauge.  The data just released shows that PCE has slightly cooled.  Here are the details:
  • PCE came at 0.3% vs. 0.4% consensus.
  • Core PCE came at 0.3% vs. 0.4% consensus.
• The U.S. economy is 70% consumer based. For this reason, prudent investors pay attention to personal income and personal spending.  The just released data shows that the consumer buying binge has ended.  Here are the details:
  • Personal spending came at 0.2% vs. 0.3% consensus.
  • Personal income came at 0.3% vs. 0.3% consensus.
• Bank borrowing from the Fed backstop facilities fell to $152.6B through March 29 vs. $163.9B the prior week.  This indicates that overall, the banking system is being less stressed.
• Even though overall the banking system is seeing less stress, deposits continue to flow from small banks to big banks, Treasuries, and money market funds.  Small banks lost $120B in deposits, but the biggest 25 banks gained $67B in the week ending March 15 with the remaining funds going to Treasuries and money market funds.
• Today is the last day of the quarter and a Friday.
  • Short squeezes tend to occur on Fridays.
  • Typically window dressing is done by the last day of the quarter.
  • Some hedge funds try to short on the last day of the quarter to take advantage of the strength generated by window dressing.
  • Some traders buy stocks on the last day of the quarter to front run the blind money that will pour into Wall Street over the first two days of the new month.
• Seasonally, April is the second strongest month of the year.

China Retaliation

Japan is proposing to restrict more semiconductor equipment exports to China for security reasons.

China is accusing Japan of aligning with the U.S. in trying to contain China.

Perhaps in retaliation, China is starting a regulatory cybersecurity review of Micron’s (MU) products.  MU is the biggest U.S. semiconductor memory manufacturer.

Tim Cook, CEO of Apple (AAPL), got a great reception on his recent visit to China.  Tesla’s (TSLA) Musk is planning to visit China.  Having said that, investors need to be somewhat cautious about the quantities they hold of popular stocks with heavy dependence on China.  These stocks include Apple, Tesla, Nike (NKE), Nvidia (NVDA), AMD (AMD), Starbucks (SBUX), and BlackRock (BLK).

Eurozone

In the eurozone, month-over-month CPI came at 0.9% vs. 0.8% consensus. Month-over-month Core CPI came at 1.2% vs. 0.6% consensus.  As we have been sharing with you, investors should focus on month-over-month numbers and not year-over-year numbers. So far, the stock market is ignoring these numbers and instead focused on year-over-year numbers which have come down.  Year-over-year inflation fell to 6.9% primarily on falling energy 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

On the PCE number, gold futures crossed above $2,000 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 started seeing buying on the PCE release.

Markets

Our very, very short-term early stock market indicator is 🔒.  However, expect the market to open higher.  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 $1995, silver futures are at $24.08, and oil futures are at $74.87.

S&P 500 futures are trading at 4093  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 142 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.

New Bull Market

Please click here for a chart of  Nasdaq 100 ETF (QQQ).

Note the following:

• The chart shows that QQQ has entered a new bull market with 23% gain from the lows, as shown with the cyan line.
• The chart shows that QQQ is breaking above the upper band of the resistance zone.  If there is no pullback, the resistance zone will become a support zone.
• Shifting to S&P 500, almost all of the rally is driven by seven stocks: Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), Meta (META), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA).
• In The Arora Report analysis, a stock market that is primarily driven by seven megacap tech stocks is an unhealthy stock market.
• The big picture reason behind the rally in tech stocks is three-fold:
  • The momo narrative that has taken hold is that the Fed will cut interest rates by about 1% in 2023.
  • Money has rushed into tech stocks due to the bank crisis as investors perceive tech stocks as safe stocks.
  • 0DTE options have played a major role in the move up.  Investors need to understand that 0DTEs are significantly impacting long term investors as well as short term traders. It is important for all investors to develop a good understanding of how 0DTE options are driving the stock market.  For next-level information, please listen to the podcast titled “Market Mechanics: Understand Zero-Day Options To Gain An Edge.”
• In the shorter term, the rally has been driven by the following factors:
  • 0DTE options are significantly exaggerating the move up.
  • In quarter end window dressing, money managers are aggressively buying the seven stocks listed above to show their clients in the quarter end report that they were holding winning stocks during the quarter.   In the process, such money managers are running up the stock market.
  • The momo crowd is buying on hope strategy ahead of the all important PCE data that will be released Friday.

Jobless Claims

Initial claims came at 198K vs. 196K consensus.

GDP

Q4 GDP-Third Estimate came 2.6% vs. 2.7% consensus.

Layoffs

Major video game producer Electronic Arts (EA) will layoff 6% of its workforce.

Europe

Inflation fell in Spain but is higher than expected in Germany. As of this writing, the stock market is focused on falling inflation in Spain as a reason to buy stocks, but it is ignoring higher inflation in Germany.

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 continues to see 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 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 $1986, silver futures are at $23.98, and oil futures are at $73.36.

S&P 500 futures are trading at 4082  as of this writing.  S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 3950, 3860, and 3770.

DJIA futures are up 195 points.

Glimmers Of Hope

Please click here for a chart of Micron stock (MU).

Note the following:

• The Morning Capsule is about the big picture and not individual stocks.  The chart of Micron stock is being used to illustrate the bigger point.
• We have often shared with you that semiconductors are a leading sector.  Semiconductors often move before the rest of the stock market.  Within semiconductors, Micron is a bellwether as it is the largest semiconductor memory manufacturer in the country.
• During the pandemic, when the momo crowd was running up semiconductor stocks without understanding how the industry worked, we provided you with an edge by repeatedly sharing with you that a common practice in the industry was double and triple ordering.  Please see prior Capsules for the details.
• The chart shows that Micron made a higher low.
• The chart shows the reaction to Micron earnings.
• On the surface, Micron earnings were terrible.
  • Earnings came at a loss of $1.91 vs. consensus of a loss of $0.86.
  • Micron is writing off $1.43B of inventory (remember double and triple ordering) vs. a consensus of a write off of $700M.
  • Micron had a negative gross margin due to inventory write off.
  • For Q3, Micron is projecting a loss of $1.51 – $1.65 vs. consensus of a loss of $0.90.
• In spite of such terrible earnings, there is a glimmer of hope in Micron’s earnings. It appears that the inventory write-down cycle is bottoming. Historically, the time to buy semiconductors is when the inventory cycle bottoms.
• There is also excitement about artificial intelligence as artificial intelligence is likely to use ten times more memory.
• The stock market also likes that Micron is reducing headcount by about 15% and cutting production.
• Adding to the excitement from Micron’s earnings, there is a strong rally in China tech.  The rally in China tech was triggered by a 16% move in Alibaba (BABA) on the news that it would split into six units.
• The Chinese government is apparently embarking on a plan to attract more foreign investment.
• On the strong rally in Chinese tech stocks, overnight stocks in Hong Kong rose 2.1%.
• The sentiment from China seeped into Japan where stocks closed up 1.3%.
• In a round robin fashion, European stocks rallied in part, encouraged by the rally in Asia.
• The rally in Europe is also encouraged by two pieces of news:
  • Chip maker Infineon (IFNNY) raised its guidance.
  • UBS is rehiring its former CEO.
• The futures in the U.S. are taking their cue from China and Europe on top of excitement about Micron.
• There is aggressive buying in the premarket.
  • Aggressive buying in the premarket has pushed S&P 500 futures above the psychologically important number of 4000.
• The Fed’s favorite inflation gauge PCE will be released on Friday.  Expect the momo crowd to buy ahead of PCE on hope strategy. There may be a need to reduce  hedges.  Stay tuned. 

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 data is positive for oil.  API came at a draw of 6.076M barrels vs. a consensus of a build of 0.187M barrels.

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

For longer-term, please see oil ratings.

Bitcoin

There are reports that Binance has extensive links with China even though Binance has been claiming that it left China in 2017.  Whales are aggressively driving bitcoin higher to prevent bitcoin from falling after the U.S. lawsuit against Binance.

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 1964, silver futures are at $23.31, and oil futures are at $74.14.

S&P 500 futures are trading at 4038  as of this writing.  S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 3950, 3860, and 3770.

DJIA futures are up 256 points.

Speculative Sentiment Stays High

Please click here for a chart of Coinbase stock (COIN).

Note the following:

• The Morning Capsule is about the big picture and not about one company or cryptos.
• The chart of COIN is being used to illustrate the bigger point.  COIN is the largest crypto exchange in the U.S.
• Sentiment is a big driver of the stock market.  Sentiment is one of the six dimensions of analyzing the stock market.  What is happening to crypto exchanges such as COIN and Binance is an indication that the speculative sentiment is staying high.
• Speculative sentiment rose after the pandemic low and stayed very high until the end of 2021.  In 2022, speculative sentiment was washed off.  In 2023, speculative sentiment has risen and continues to stay very high.
• The chart shows that COIN traded as low as $31.55 not that long ago.
• The chart shows when the news broke that COIN had received a Wells notice.  As we had previously shared with you, a Wells notice is typically sent to a company before the government sues the company. We have not seen the government’s case yet, but it is easy to see that if the government decides to act with vigor, COIN faces an existential threat.
• The chart shows that in spite of an existential threat, COIN stock is hanging in there around $62 vs. a recent low of $31.55.
• The very important news is that the U.S. is suing the world’s largest crypto exchange Binance.  This news was unexpected.
  • CFTC alleges that Binance and its CEO violated U.S. laws.
  • CFTC alleges that compliance at Binance is a sham.
  • CFTC alleges that the CEO Changpeng Zhao instructed his employees and customers to circumvent compliance controls to maximize profits.
  • Most damaging is that Binance gave a heads up to its VIP customers when the U.S. government was freezing accounts of such customers for money laundering and other criminal activity.
  • The heads up by the exchange allowed such customers to move their funds out of the reach of the U.S. government.
• In spite of two major likely government crackdowns, bitcoin is levitating near its highs.  Investors need to understand that bitcoin is controlled by whales.  Whales manipulate bitcoin at will to take advantage of enthusiasm among retail investors for bitcoin. Trading manipulation is illegal.  It is not clear as to why the U.S. government has not moved against the whales so far.  The reason could be that most of the whales are based outside of the U.S. and often in jurisdictions that protect them.  Moreover, whales tend to be highly secretive.
• After yesterday’s run up in the stock market on potential rate cut buying, the 2-year Treasury yield has risen.  We shared with you yesterday:

A move in 2-year Treasuries often precedes a move in the Fed funds rate.

• The yield on 2-year Treasuries has risen to 4.017% as of this writing.  The rising yield and the Binance news is dampening buying
• As an actionable item, consider paying attention to the protection band.  The protection band is derived by taking into account several high probability scenarios plus the tail risk to maximize risk adjusted returns.
• Consumer confidence will be released at 10am ET and may move the markets.

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 slightly pulling back on Binance news.

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 $1962, silver futures are at $23.18, and oil futures are at $72.91.

S&P 500 futures are trading at 4001 as of this writing.  S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 3950, 3860 and 3770.

DJIA futures are down 32 points.

Classic Rate Cut Signal Triggered

Please click here for a chart of 2-year Treasury ETF (UTWO).

Note the following:

• The chart shows a sharp breakdown in 2-year Treasuries prior to the start of the banking crisis.
• The chart shows a sharp move up, including a breakout in 2-year Treasuries due to the banking crisis.
• The price of Treasuries moves inverse to interest rates.  The yield on 2-year Treasuries moved from a high of 5.066% on March 8 to 3.777% on March 24.  The yield is rising this morning to 3.982% as of this writing.
• A move in 2-year Treasuries often precedes a move in the Fed funds rate.
• The differential between Fed funds rate at the year end as projected by the Fed and what the market believes reached an unusually high gap of 1.145% on Friday.
  • Either the Fed is wrong or the market is wrong.
• The foregoing events have triggered a classic rate cut signal.  The conventional wisdom at present is to buy stocks on this rate cut signal.
• For over a year, when the stock market became too optimistic compared to the Fed, The Arora Report call has consistently been that the stock market was wrong.  Every single one of those calls has proven spot on.
• Market conditions have now changed.  Our call is no longer that the stock market is wrong.
• As the stock market is focused on buying stocks on this rate cut signal, the market is ignoring the fact that the banking crisis is tightening financial conditions.  Here are the key points:
  • Over 50% of the loans in key sectors of the economy are provided by banks with assets under $250B.
  • Stricter regulations are coming to these banks.
  • These banks have tightened lending standards, making it more difficult to get loans.
  • Regulatory supervisors of such banks have been humiliated.  Every time regulators are humiliated, they become stricter in supervision.
  • The Arora Report call is that there is less than 40% probability that this rate cut signal to buy stocks is correct.
  • Due to the high importance of this signal, a podcast titled ”Should You Buy Stocks On The Classic Rate Cut Signal?” that gives next-level information has been recorded and is in post-production.
• The tightening of financial conditions has increased the probability of a recession.  Wall Street’s earnings estimates are too high.  We started sharing with you our call that Wall Street’s earnings estimates were too high when they were at $250.  That call has proven spot on.  Wall Street’s earnings estimates are now about $206.
• Most of Silicon Valley Bank (SIVB) has been bought out by First Citizens Bank (FCNCA).  The bank is buying certain loans at a discount of over $16B from FDIC. FDIC will still have about $90B of loans in receivership.
  • FCNCA stock is jumping 55% as of this writing in the premarket.
• We have previously shared with you that investors should keep track of three western regional banks.
  • FRC is up 30% as of this writing in the premarket.
  • WAL is up 6.5% as of this writing in the premarket.
  • PACW is up 9.6% as of this writing in the premarket.
• The government is finding ways to give First Republic more time to find a buyer.
• The actionable item is to develop your knowledge about the rate cut buy signal and be ready to make a change.  At this time, there is no change in the protection band.

Window Dressing

The end of the quarter is approaching.  Expect many money managers to engage in window dressing.  In window dressing, these money managers buy the stocks that have been winners this quarter and sell the stocks that have been losers this quarter to show their clients in their quarter-end report that they are holding winning stocks and not losing stocks.

Momo Crowd And Smart Money In Stocks

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

Gold

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

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

Oil

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is range bound.

Markets

Our very, very short-term early stock market indicator is 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking 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 $1951, silver futures are at $23.05, and oil futures are at $70.49.

S&P 500 futures are trading at 4025  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 217 points.