Stagflation

Please click here for a chart of Amazon stock (AMZN).

Note the following:

• The Morning Capsule is about the big picture, not an individual stock. The chart of AMZN is being used to illustrate the point.
• The chart shows when Amazon earnings were released.  Going into earnings whisper numbers had started ratcheting up. Along with the ratcheting up of whisper numbers, Amazon stock also ran up going into earnings.
• Whisper numbers are the numbers that analysts privately share with their best clients to drum up business.  These whisper numbers are different from the published numbers from the same analysts.  The best clients get the analysts’ best and latest assessment, while the public merrily uses stale numbers without an understanding of what is going on.  
• Historically for a stock to run up after earnings, it has to report numbers better than the whisper numbers.  Amazon’s numbers were better than the consensus but worse than the whisper numbers.  The stock should have gone down, but the chart shows that the stock ran up because the momo crowd showed desperation to buy Amazon stock.
• Many investors do not realize that Amazon continuously loses money with the exception of AWS.  Without AWS, Amazon is a money losing operation.
  •  Operating income from AWS was $5.1B, about 4% below the consensus.
  •  Operating income for the entirety of Amazon was $4.8B.  This indicates that the rest of Amazon lost $300M.
• The chart shows that the stock fell when, during the conference call, it became obvious that AWS growth is slowing.  In April, the growth rate in AWS is 500 basis points below the first quarter.
• It appears that Amazon is losing market share to Microsoft (MSFT).
• The price action in Amazon, Microsoft, Meta (META), and Google (GOOG, GOOGL) is showing that the momo crowd is desperate to buy megacap tech stocks.  They have shifted into the same mode they were in in 2020 and 2021 – price does not matter; valuation does not matter; the only thing that matters is buying.
• Our decades of experience in the markets shows that in the long run, it is always a mistake to become desperate to buy stocks.  The evidence is crystal clear – those who buy with self-discipline following a proven system come out way ahead in the long run.   
• A significant amount of data has been released this morning. The data points to stagflation.
• PCE is the Fed’s favorite inflation gauge.  Here are the details:
  • Headline PCE came at 0.1% vs. 0.1% consensus.
  • Core PCE came at 0.3% vs. 0.3% consensus.
• Lately, the Fed has been paying attention to the employment cost index. The employment cost index rose by 1.2% in Q1 vs. 1.1% consensus.
• Personal income and spending data shows that incomes continue to rise but consumers have stopped the spending binge.
  • Personal income came at 0.3% vs. 0.2% consensus.
  • Personal spending came at 0.0% vs. -0.1% consensus.
• The stock market would have fallen today but was rescued by the Bank of Japan.  The Bank of Japan has decided to continue its stimulative policies.  As a result, yields on bonds across the globe are falling.  Falling yields are helping stocks, especially tech stocks. 
• As an actionable item, the protection band offers the proper balance between various crosscurrents.

Europe Barely Skirts A Recession

Eurozone’s Q1 GDP came at 0.1% vs. 0.2% consensus.

Germany’s Q1 GDP came at -0.1% vs. 0.3% consensus.

The foregoing data shows that Europe has barely skirted a recession.

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is below $30,000.

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 $1994, silver futures are at $25.09, and oil futures are at $75.17.

S&P 500 futures are trading at 4145  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 96 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.

Chain Deflator

Please click here for a chart of Meta stock (META).

Note the following:

• The Morning Capsule is about the big picture, not an individual stock.  The chart of META is being used to illustrate the point.
• Many analysts are drawing a macro conclusion from Meta earnings.  In The Arora Report analysis, that conclusion is misplaced.
• The chart shows when Meta earnings were released.
• Meta earnings were better than good on both the revenue front and the cost cutting front.
• The chart shows a big jump in META stock.
• Meta derives most of its revenue from advertising.  It is incredible that Meta is generating over $200 of advertising revenue in the U.S. and Canada per user.  Think about it – this is more than what Netflix (NFLX) generates per user.
• Since Meta advertising revenues were so good, many analysts are extrapolating that the economy is strong.  The reason is that seasoned executives historically cut back on advertising on the first signs of a slowing economy.
• In The Arora Report analysis, Meta’s higher advertising revenues are unique to Meta and speak to strong execution by Meta.  Overall in the economy, advertising is being cut.  Google (GOOG, GOOGL) is a much bigger company than Meta.  Google mostly relies on advertising for revenue.  Just released Google earnings were not that great. 
• GDP makes a point.  Just released Q1 GDP-Adv came at 1.1% vs. 2.0% consensus. This indicates that the economy was much weaker in the first quarter than analysts expected.
  • Having worked with thousands of investors over decades, we have found that those with in-depth knowledge perform better in the market.  For those seeking next-level knowledge, there are several podcasts in the Arora Ambassador Club that shed light on GDP.
• The shocker in this morning’s data was Chain Deflator-Adv.  It came at 4.0% vs. 3.7% consensus.  The deflator measures the price changes of all goods and services.  This indicates that during the last quarter, on an overall basis, prices rose more than expected. 
  • The dollar, bonds, and gold immediately reacted to this data.
  • The stock market is oblivious.  A part of the reason is that Meta emphasized artificial intelligence in its earnings and conference call.  An artificial intelligence bubble is building among investors excited about artificial intelligence.

Jobless Claims

Initial jobless claims came at 230K vs. 245K consensus.  This goes against the trend lately of jobless claims coming higher than the consensus. This is a leading indicator and carries heavy weight in our ZYX Asset Allocation Model with inputs in ten categories.

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 being 🔒 on deflator 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 took about a 9% tumble in a matter of minutes on a rumor that the U.S. government was planning to sell bitcoin.  When the rumor was debunked, aggressive buying came into bitcoin. Bitcoin is approaching $29,000.

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 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 $1995, silver futures are at $25.22, and oil futures are at $74.48.

S&P 500 futures are trading at 4100  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 90 points.

Artificial Intelligence

Please click here for a chart of Microsoft stock (MSFT).

Note the following:

• The Morning Capsule is about the big picture, not an individual stock.  The chart of MSFT is being used to illustrate the point.
• The chart shows when Microsoft earnings were released.  The chart shows a big jump. Microsoft earnings were better than feared.
• At the same time, when Microsoft earnings were released, earnings from Alphabet (GOOG, GOOGL) were released.  Initially, Alphabet stock jumped as earnings were better than feared.  Google Cloud became profitable for the first time.
• Microsoft does not provide guidance in its earnings but provides guidance during the conference call.
• The chart shows that Microsoft stock took a second leg up when projections were given.  Projections were better than expected.
• We were listening to the conference calls carefully.  In The Arora Report analysis, there are significant cyclical headwinds ahead – both MSFT and GOOG will have difficulty meeting their projections.  Moreover, Microsoft is a very expensive stock, but right now investors do not care because they are excited about artificial intelligence.  
• The emphasis on both conference calls was artificial intelligence and the cloud.
• On the banking front, PacWest (PACW) reported that deposits have stabilized.  PACW stock jumped.  However, First Republic Bank stock (FRC) is falling again this morning as it is having difficulty plugging the hole in its balance sheet.
• In The Arora Report analysis, banks holding securities that have dropped in value is likely a widespread problem.  However, our assessment is contrary to the prevailing wisdom.  Further complicating the problem is that the supply of such securities is very large, and there simply are not enough buyers to absorb all of the supply. 

Durable Goods

Durable goods orders are very strong.

• Durable orders came at 3.2% vs. 0.7% consensus.
• Durable goods ex-transport came at 0.3% vs. -0.1% consensus.
• Prior data was revised to show less strength.
• Yields first rose on strong headlines but reverted back on prior revisions.

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 reported a draw of 6.083M barrels vs. a consensus of a draw of 1.667M 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 has jumped 8%.  The reason is the First Republic Bank situation.  Bitcoin bulls are believing that the First Republic Bank situation will force the Fed to cut interest rates.  A cut in interest rates will likely increase speculative fever.  When speculative fever increases, bitcoin goes higher.

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 $2007, silver futures are at $25.07, and oil futures are at $76.50.

S&P 500 futures are trading at 4105 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 62 points.

Longer Term Technical Perspective

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

Note the following:

• Since megacap tech stocks are the ones driving this market, for a longer term technical perspective, prudent investors should look at a chart of QQQ.
• To give a longer term perspective, the chart is a monthly chart.
• Technical analysis is part science and part art.  It is the art part that allows bulls to see what they want and bears to see what they want.
• From the monthly chart, bulls contend that the stock market is forming a bottoming pattern.  In The Arora Report analysis, the weight of evidence is in bulls’ favor.
• From the chart, bears contend that RSI shows that the rally in the stock market is just an oversold bounce.
• When we look at charts in daily and weekly time frames along with the monthly chart, technicals are on a buy signal.
• It is true that a large number of investors invest and trade based mostly on technicals.  However, in The Arora Report’s analysis, no investor should base their decision mostly on technicals.
• One reason that many investors choose to rely only on technicals is that markets are complex and investors are often confused about the direction of the market; the solution some investors have found is to focus only on technicals and ignore everything else.  This is a serious mistake.  Based on our decades of experience in the markets, investors should consider analyzing the market in six dimensions.  We shared with you the six dimensions in previous Capsules.  For in-depth information, please listen to the podcast titled “Never Be Confused Again: Six Dimensions Of The Stock Market.”
• We make it easy for you; between the Morning and Afternoon Capsules, we cover all six dimensions.
• Now there is an 88% probability of a 25 basis point rate hike in the May Fed meeting.  
• A large number of earnings are out this morning.  Earnings so far are mixed.  This is bringing in light selling in the early trade as many investors were expecting earnings better than they are being reported.
• Investors are eagerly waiting for earnings from Microsoft (MSFT) and Alphabet (GOOG, GOOGL) after the close.

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

COIN is suing the SEC to seek clarity on crypto regulations.

Bitcoin is staying below $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 $2003, silver futures are at $25.03, and oil futures are at $77.79.

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 down 76 points.

Busiest Earnings Week

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 is at the top of the top band of the support/resistance zone.
• Where the stock market goes from here will come down to earnings.
• This is the busiest earnings week. 222 of 500 S&P 500 companies report earnings this week.
• Most important earnings are from four megacap tech stocks.
  • Google (GOOG, GOOGL) and Microsoft (MSFT) report Tuesday after market close.
  • Meta (META) reports Wednesday after market close.
  • Amazon (AMZN) reports Thursday after market close.
• Wall Street’s fear gauge VIX has appeared broken on the surface.  The media has been full of pronouncements that VIX is broken.
• The reality is that VIX is not broken and has been working as intended.  However, it appears broken because the character of the options market has changed.
• VIX is calculated based on 30-day options.  VIX was developed when 0DTE did not exist.
• Now over 40% of options volume is in 0DTEs that expire the same day.
• CBOE is responding to the popularity of 0DTE with VIX1D – a one day volatility index.
• Just like you cannot trade VIX, you can not trade VIX1D.
• There are futures based on VIX. There are options on futures, and there are ETFs.
• The Arora Report expectation is that in due course, there will be tradeable products linked to VIX1D.  CBOE is saying that it will consider such products if there is demand.
• Due to the enormous influence of 0DTE on the markets these days, it is important for all investors, including long term investors, to develop an in-depth understanding of 0DTE.  Listen to the podcast titled “Market Mechanics: Understand Zero-Day Options To Gain An Edge.” If you are interested in a podcast on VIX1D, please write to ambassador@thearorareport.com.
• In The Arora Report analysis, the introduction of VIX1D will make market mechanics even more influential than they are right now.
• An actionable item from the foregoing is the protection band that strikes the appropriate balance between various cross currents.

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 trading above $27,000.

Bitcoin halving is scheduled for 2024.  There are an increasing number of predictions that bitcoin could run to $100,000 in anticipation of halving.  

In bitcoin halving, rewards for mining new bitcoin blocks are reduced by one-half.  This is an artificial way to inflate the price of bitcoin.  

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 $1995, silver futures are at $25.09, and oil futures are at $77.10.

S&P 500 futures are trading at 4156  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 29 points.