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.

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.

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.

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.