Buying Binge Reverses

Please click here for a chart of JPMorgan stock (JPM).

Note the following:

• The Morning Capsule is about the big picture and not about an individual stock.  The chart of JPM is being used to illustrate the point.
• The chart shows when the banking crisis started on March 8.  You may recall that The Arora Report was among the first to warn about the banking crisis on March 8.
• The chart shows about a 6% jump in JPM stock on good earnings as of this writing in the premarket.
• Prudent investors should not get so excited about JPM earnings because JPM is the strongest and most systemically important bank in the country.  Its balance sheet is equated to the Rock of Gibraltar. It was a given that during the banking crisis, deposits would flow to JPM from smaller banks.  The result is excellent earnings from JPM.
• Earnings from two other systemically important banks Citigroup (C) and Wells Fargo (WFC) are also good because deposits flew into large banks.
• Prudent investors should pay special attention to super regional bank PNC (PNC).  The reason is that this is not a systemically important bank.  Earnings are in line and deposits grew during the banking crisis.  Many analysts were expecting a drop in deposits.
• The momo crowd does not like good bank earnings.  The reason is that the momo crowd has been buying stocks on the theory that the Fed will cut interest rates by as much as 100 basis points this year.  If bank earnings were weak, that may have prompted the Fed to act.
• The data just released shows retail sales have become weaker.  This indicates that the consumer buying binge has reversed.  Here are the details:
  • Headline retail sales came at -1.0% vs. -0.4% consensus.
  • Retail sales ex-auto came at -0.8% vs. -0.4% consensus.
• The momo crowd does not like weak retail sales because this goes against their belief that earnings will stay strong other than in the banking system.  The momo crowd wants weak earnings in the banking system and strong earnings elsewhere.
• Initial buying in the early trade by the momo crowd has now turned into light selling by the momo crowd.
• As an actionable item, the protection band offers the proper balance between various crosscurrents.

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 after initially buying.  Smart money is 🔒 in the early trade.

Gold

Gold is seeing 🔒 as the dollar is stronger.

The momo crowd is 🔒 gold in the early trade.  Smart money is inactive 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 🔒.  Remember short squeezes often occur on Fridays.  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 $2038, silver futures are at $25.93, and oil futures are at $82.29.

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 down 7 points.

Protection Band 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.

Inflation Cools At Producer Level

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 yesterday’s attempt for the stock market to break above the upper band of the support/resistance zone failed.  Initially, on release of CPI data, the stock market rose above the upper band but was not able to sustain.  Please see yesterday’s Morning Capsule and Afternoon Capsule.
• The chart shows that there is an up move in the stock market in the early trade on PPI and jobless claims data. However, the move is contained within the support/resistance zone.
• The interpretation of the foregoing is that in spite of the overall technical buy signal that the stock market is on, the upper band of the support/resistance zone is offering very stiff resistance.
• Bulls are disappointed as they expected the stock market to rocket higher due to improving macro data on inflation.
• The Arora Report interpretation is that big money is getting concerned about the potential recession and is taking advantage of any up moves to sell.
• Inflation at the producer level significantly cooled.  Here are the details:
  • Headline PPI month-over-month came at -0.5% vs. 0.1% consensus.
  • Core PPI month-over-month came at -0.1% vs. 0.2% consensus.
• Weekly initial jobless claims is a leading indicator.  It carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories.  Adaptiveness, in plain English, means that the model automatically changes with market conditions.  Please click here to see how this is achieved.
  • Weekly initial claims are now decisively above 200K.  Initial claims came at 239K vs. 236K consensus.
  • This indicates that the strength in the jobs market is finally beginning to wane.  This is a step in the right direction for inflation to cool.  As the strength in the employment picture wanes, wage increases are becoming restrained.  In some cases such as information technology, wages are even falling.
  • This is exactly what the Fed has been trying to achieve.  The Fed is succeeding.  In the long term, this is a positive for the stock market.    
• As an actionable item, the protection band offers the right balance between various crosscurrents.

Surprise From China

China’s trade surplus rose to $88.19B in March vs. $39.20B consensus. The big surplus is due to better than expected exports to Europe and Asia.  This data should be interpreted that economies in Europe and Asia are doing well.  

Europe

In Germany, March CPI came at 0.8% month-over-month vs. 0.8% consensus.

Eurozone industrial production came at 1.5% vs. 1.0% consensus.

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 is seeing 🔒 on PPI data.

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.  There is significant buying in bitcoin by retail investors.  So far institutions seem to be staying away.

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 $2059, silver futures are at $25.98, and oil futures are at $82.90.

S&P 500 futures are trading at 4134 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 59 points.

Deploy Cash And Reduce Hedges

Consider reducing hedges slowly.  Please scroll down to the section “Protection Band And What To Do Now.”  Also consider deploying cash slowly.

Even though inflation is slowing and the technicals of the stock market are positive, do not forget the following:

• The probability of a recession is high.
• Banks are reducing lending.
• Market valuation is high.
• Wall Street earning estimates are too high.
• Over $1.5T worth of loans against commercial real estate will come due by 2025. Many of these loans will be difficult to refinance.  Expect foreclosures on commercial properties.  This will provide significant opportunities over the next few years.
• The Arora Report analysis is different regarding the Fed compared to the prevailing wisdom in the market.  The fact that The Arora Report has consistently been right about the Fed over the last 15 years and the prevailing wisdom in the market has almost always been initially wrong gives us confidence.  However, keep front and center Arora’s Second Law of Investing and Trading: “ Nobody knows with certainty what is going to happen next in the markets.”

Core Inflation Sticky

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 in the premarket, after the release of CPI data, the stock market is slightly above the upper band of the support/resistance zone.  So far, the stock market is reacting positively to the inflation data.
• Headline inflation slowed, but core inflation is sticky.  Here are the details:
  • Headline CPI came at 0.1% month-over-month vs. 0.3% consensus.
  • Core CPI came at 0.4% month-over-month vs. 0.4% consensus.
  • Headline CPI year-over-year came at 5.0% vs. 5.1% consensus.
  • Core CPI year-over-year came at 5.6% vs. 5.6% consensus.
• In The Arora Report analysis, unless there is new data, the Fed is still likely to increase interest rates by 25 basis points one more time and then pause.  Keep in mind that the stock market is positioned for no rate hike and as much as 100 basis point cuts during the rest of the year.  Understanding market positioning can give you a big edge.  For those who are interested in next-level information, listen to the podcast titled “Market Mechanics: Positioning.”
• Fed minutes will be released at 2pm ET and will provide more insights into the Fed’s thinking.
• As an actionable item, the protection band provides the right balance between various crosscurrents.  Note that the protection band has changed.

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 is seeing 🔒 on CPI data.

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 crude inventory came at a build of 377K barrels vs. a consensus of a draw of 1.3M 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

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 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 $2035, silver futures are at $25.64, and oil futures are at $82.09.

S&P 500 futures are trading at 4158  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 181 points.

Technicals Stay Positive

Please click here for a chart of semiconductor ETF SMH.

Note the following:

• Investors should always do a 360 degree analysis of the markets.  There are six important dimensions to 360 degree analysis:
  • Technicals
  • Fundamentals
  • Quantitative
  • Macros
  • Sentiment
  • Liquidity
• We are working on a podcast on the six different dimensions to analyze the markets for those who want next-level information.  The podcast will be available in the Arora Ambassador Club. Please click here to join the waitlist.
• While fundamentals and macro continue to deteriorate, technicals are giving a buy signal.  A good way to look at technicals is to look at semiconductors.
• Semiconductors are the lifeblood of the modern economy.  Prudent investors pay attention to semiconductors as they are a leading indicator in the stock market and often give signals in advance.
• The chart of semiconductors shows that technicals are remaining positive.
  • The chart shows that semiconductors traced an inverse head and shoulders pattern.  This is a positive pattern.
  • The chart shows that after semiconductors broke above the support zone, the support zone contained the retracement. This is a positive.
  • The chart shows that after the retracement, semiconductors made a higher high compared to the recent high.  This is a positive.
  • The chart shows semiconductors are now consolidating around the prior recent high.  This is a positive.
  • RSI on the chart shows that semiconductors have room to run.
• Investors are eagerly awaiting CPI on Wednesday, PPI on Thursday, and big bank earnings on Friday.  As is historically the case, smart money is cautious ahead of the events since the events represent risk.  In contrast, the momo crowd buys ahead of the events because the momo crowd uses hope strategy and risk is not part of the equation for them.
• As an actionable item, the protection band offers the right balance between various crosscurrents.

Japan

Warren Buffett is in Japan.  Japanese stocks are jumping on the prospect of Buffett making more investments in Japan.  For those interested in Buffett’s prior investments, including those in Japan, please listen to a multipart podcast series in the Arora Ambassador Club.

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 has crossed $30,000.  Speculative buying fever is spreading mostly among mom and pop.  The talk of bitcoin going to $1M is gaining steam.

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 $2013, silver futures are at $25.05, and oil futures are at $80.07.

S&P 500 futures are trading at 4140 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 41 points.

China Drills Encircling Taiwan

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 bounced off the low band of the support/resistance zone.
• RSI on the chart shows that the stock market is getting slightly less overbought.
• The jobs report, the mother of all numbers, was released on Friday at 8:30am ET when the stock market was closed.
  • Nonfarm payrolls came at 236K vs. 239K consensus.
  • Nonfarm private payrolls came at 189K vs. 213K consensus.
  • Unemployment rate came at 3.5% vs. 3.6% consensus.
  • Average hourly earnings came at 0.3% vs. 0.3% consensus.
  • Average work week came at 34.4 vs. 34.5 consensus.
• Overall the jobs report is strong.  In The Arora Report analysis, barring surprises in the new data, the jobs report makes a case for a 25 basis point rate hike at the next Fed meeting.
• Investors need to be aware that permabears are projecting job growth to fall near zero later this year.  At the same time, permabulls are projecting job growth to stay around 200K per month.
  • Prudent investors should consider neither becoming a permabear or a permabull but rather paying attention to the data as it comes.
  • The jobs report has given plenty of ammunition to momo gurus to run up the stock market.  As a matter of fact, the momo crowd aggressively bought futures on release of the jobs report on Friday.  Futures were trading when the stock market was closed.
• This morning caution is seeping into the stock market as prudent investors contemplate how China has so far conducted two days of military drills around Taiwan.  The Chinese military is doing live drills to encircle the island.  China also practiced hitting key targets in Taiwan.
  • Historically, prudent investors become concerned about China’s military drills and the stock market dips like it is dipping this morning, but the momo crowd buys the dip and runs up the stock market.
• Two important pieces of economic data are ahead.  CPI will be released Wednesday at 8:30am ET.  PPI will be released Thursday at 8:30am ET.  These numbers have the potential to move the markets.
• The momo crowd continues to ignore negative news, but prudent investors should not.  For example, Apple (AAPL) stock has been run up even though sales in various segments have not been doing well.  The latest news is that Apple’s PC shipments dropped 40%.  This drop is steeper than the drop seen by Apple’s competitors.
• As an actionable item, the protection band strikes the right balance between various crosscurrents at this time.

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.

Bitcoin

There is some disappointment among bitcoin bulls that whales did not take advantage of low liquidity during the holiday weekend to run bitcoin up to $30,000.  However, bitcoin continues to levitate above $28,000.

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 $2006, silver futures are at $24.97, and oil futures are at $79.97.

S&P 500 futures are trading at 4108  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 110 points.