WEEKLY STOCK MARKET DIGEST: HOPE SPRINGS ETERNAL FOR A WEAK JOBS REPORT ON A HOLIDAY

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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.’

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

 

HOPE SPRINGS ETERNAL FOR A WEAK JOBS REPORT ON A HOLIDAY, HOLIDAY SCHEDULE

Jobs Report

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 touched the upper band of the support/resistance zone and has backed off.
  • The chart shows that RSI is still overbought.  An overbought market is vulnerable to a pullback on the slightest bad news.
  • In an unusual circumstance, the jobs report will be released on a holiday.  The jobs report is also known as the mother of all reports due to its importance.  It will be released on Friday at 8:30am ET.  The stock market will be closed for Good Friday.
  • Stock market bulls are hoping for a weak jobs report. The reasoning is that a weak jobs report will persuade the Fed to cut interest rates. The momo crowd’s prevailing narrative is still ignoring the other side of a weaker economy — weaker earnings.
  • For today, stock market bulls are drawing comfort from the ADP report.  ADP is the largest private payroll processor in the country and uses its data to give a glimpse of the employment picture ahead of the official jobs report.
    • ADP employment change came at 145K vs. 205K consensus.
    • The report shows that the jobs picture is weakening.
  • The bullishness of the momo crowd is being tempered by two developments this morning.
    • Cleveland Fed President Mester said that the Fed should increase the Fed funds rate above 5% and hold it there for some time.  She emphasized that the Fed’s target is to drive inflation down to 2%.
    • The Reserve Bank of New Zealand (RBNZ) raised its interest rate by 50 basis points. This was unexpected. RBNZ said that inflation is still persistent and too high.
  • ISM Services Index will be released today 10am ET.  The consensus is 54.5.  This data has the potential to move the stock market.
  • Liquidity will dry up starting this afternoon as senior personnel leave for the holiday.  Wall Street trading desks will be manned by junior personnel.  In a low liquidity environment, the stock market can be pushed easily in either direction.
  • Professional traders will be squaring their positions as they will not be able to react to the jobs report.
  • As an actionable item, the protection band offers the right balance between various crosscurrents in the markets right now.

Holiday Schedule

Happy Easter to you and your families.  Due to the holiday schedule, there will be no Afternoon Capsule today, and the offices will be on a reduced schedule Thursday and Friday.  Posts other than the capsules will be published as needed.  Capsules will resume on Monday.

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

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 levitate.  Bitcoin bulls are hopeful that whales will take advantage of the low holiday liquidity to push bitcoin higher to above $30,000  on Thursday or Friday night.

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.

See also  BUYING IN THE STOCK MARKET ON TAMER PPI AND ECB SIGNAL

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 $2047, silver futures are at $25.02, and oil futures are at $80.68.

S&P 500 futures are trading at 4120  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 28 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.

 

STOCK BUYING ON NEW FLAWED MOMO NARRATIVE

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

Stock Buying

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 SPY is at the top band of the resistance zone.
  • This is a holiday week.  Starting tomorrow, liquidity will become lower.
  • Bulls will try to take advantage of the low liquidity to push the stock market above the top band of the resistance zone shown on the chart.
  • On the flip side, RSI on the chart shows that the stock market is very overbought.  When the stock market is this overbought, it does not take much to push it down.  Even though the bulls are focused on low liquidity ahead to push the stock market higher, low liquidity is a double edged sword.  Under low liquidity conditions, the stock market can easily be pushed either way.
  • In yesterday’s Afternoon Capsule, we shared with you the new narrative that is taking hold:

The new momo guru narrative is that an increase in oil prices will increase the chance of a recession and a recession is deflationary – the reason to buy stocks now is because of the deflationary aspect of a recession potentially triggered by high oil prices.

  • You may recall that the same gurus were saying that there will not be a recession and that was the reason to buy stocks.

  • The new narrative that is taking hold is flawed.
    • At least initially, higher oil prices are inflationary.
    • The bulls are not thinking that if there is a breakout from here, oil can shoot to $100.  Please see yesterday’s Morning Capsule for details.
    • As bulls are claiming that the Fed will be forced to cut interest rates due to bad economic conditions, they are not thinking that bad economic conditions will negatively impact earnings.
  • As an actionable item, the protection band offers a good balance between various cross currents in the stock market.
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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 levitate.

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 $2000, silver futures are at $24.15, and oil futures are at $81.11.

S&P 500 futures are trading at 4162  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 14 points.

 

SAUDI ARABIA HITS BACK AT BIDEN WITH SURPRISE OPEC+ PRODUCTION CUT – INFLATIONARY IMPACT

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

Surprise OPEC+ Production Cut

Please click here for a chart of oil futures (CL_F).

Note the following:

  • In a surprise move, OPEC+ announced a production cut totaling 1.66M barrels per day.
  • The chart shows a gap up when oil futures opened Sunday evening.
  • The chart shows that before this move up oil had lost ground.  This was due to the fear of the banking crisis increasing the probability of a recession.  In a recession, oil demand goes down.
  • The chart shows that oil has now recouped most of the recent losses.
  • The chart shows that oil is now in the resistance zone.
  • Prudent investors should carefully watch if oil breaks above the resistance zone.  In The Arora Report analysis, if oil breaks above the resistance zone, $100 oil will be a magnet for oil traders.
  • The Arora Report short term rating on oil is now positive. Please see the latest post on oil ratings. You can access it from the top menu.
  • Our information at The Arora Report is that Saudi Arabia was irritated with Biden for deciding not to refill the Strategic Petroleum Reserve (SPR). Without going into the math, the production cut is aligned with the increased demand that would have occurred if Biden had decided to refill SPR.
  • From a long term strategic point of view, this is not a great development for the U.S. Historically, Saudi Arabia was totally aligned with the U.S. and dependent on the U.S. for its defense.  Now, Saudi Arabia is increasingly moving away from the U.S. and closely aligning with Russia and China.  
  • The U.S. is mostly energy independent.  However, this development will make it more difficult for Europe as Europe is highly dependent on OPEC.
  • Prudent investors need to be aware that although the headline is for a 1.66M barrels per day production cut, based on historical OPEC+ math, the reality may turn out to be only 500K – 900K bpd production cut.
  • Higher oil prices are inflationary.  A big reason that inflation has come down lately is due to falling oil prices.  
  • Here is the key question: How will the Fed react to high oil prices:
    • The probability of a 25 bps rate hike at the next Fed meeting on May 3 has risen to 57% from 48%.
  • The impact of the oil production cut is diverging between DJIA and Nasdaq.  DJIA futures are up because DJIA contains oil company Chevron (CVX) – CVX stock is being aggressively bought in the premarket.  Also helping DJIA is an unrelated development that is causing aggressive buying in UnitedHealth (UNH).  UNH is a health insurer.  The Center for Medicare and Medicaid services has issued new guidance for Medicare Advantage.  The new guidance is positive for health insurers.
  • In spite of the momo crowd buying tech stocks and blind money rushing into the stock market, smart money is selling tech stocks in the early trade.  The reason is that tech stocks have run up on a momo guru narrative that the Fed would be cutting interest rates by about 100 basis points in 2023.  If higher oil prices are sustained, it is difficult to see the Fed cutting interest rates.  Expect momo gurus to come up with a new reason to buy tech stocks.
  • Today is the first day of the quarter.  Blind money is rushing into the stock market.  Blind money is the money that flows into Wall Street on the first two days of the month, and especially on the first two days of the new quarter, without any analysis and irrespective of market conditions.  Typically blind money is invested in the afternoon, running up the stock market.  Also, Wall Street tends to front-run the blind money by buying on the last day of the prior month and in the morning at the beginning of the new quarter so that Wall Street can profit from the behavior of the blind money.
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Layoffs

McDonalds (MCD) is planning layoffs.  In an unusual move, MCD has closed its corporate office so that layoffs can be done virtually.

In an ironic move, Indeed, a company that helps people find jobs is laying off 2200 employees or about 15% of its workforce.

Momo Crowd And Smart Money In Stocks

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin continues to levitate.

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 $1995, silver futures are at $24.15, and oil futures are at $80.22.

S&P 500 futures are trading at 4133  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 93 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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