Apple Earnings And Jobs Report

Please click here for a chart of Apple stock (AAPL).

Note the following:

• The Morning Capsule is about the big picture, not an individual stock.  The chart of Apple stock is being used to illustrate the point.
• The trendline on the chart shows that Apple stock has been steadily running up.
• The chart shows that in the premarket Apple stock is running up.
• The chart shows that Apple stock is approaching the resistance zone.
• Stock market bulls are taking Apple earnings as great, whereas stock market bears point to declining revenues.
• Here are the positives from Apple earnings:
  • Apple reported $1.52 vs. $1.43 consensus.
  • iPhone sales came at 51.33B vs. 50.57B last year.
  • Apple is pivoting to India.  India is ascendant with a growing middle class. Apple believes that India can become another China for Apple.
  • Apple also foresees significant growth over the long term in emerging markets such as Indonesia, Saudi Arabia, and Mexico.
  • Apple boosted its quarterly dividend by 4% to $0.24 per share.
  • Apple is adding $90B to its share repurchase plan.
• Here are the negatives from Apple earnings:
  • Service revenues came at 20.91B vs. 19.82B last year.  Expectations were for a significantly larger increase in service revenues.
  • Mac sales came at 7.17B vs. 10.44B last year.
  • iPad sales came at 6.67B vs. 7.5B last year.
  • Overall, revenues declined about 2.5%.
  • Bulls were expecting revenues to increase by about 2%.  Bears were expecting revenues to decrease by about 5%. 
  • This is the second quarter in a row that Apple revenues have decreased.  
  • Apple is not providing formal guidance but is implying that in this quarter revenues will decline by about 3%.  
  • For a company with three consecutive quarters of declining revenues, from a valuation perspective, Apple is an expensive stock trading at a PE over 28.
• The jobs report is stronger than expected.  Here are the details:
  • Nonfarm private payrolls came at 230K vs. 160K consensus.
  • Total nonfarm payrolls came at 253K  vs. 180K consensus.
  • The unemployment rate came at 3.4% vs. 3.6% consensus.
  • Average work week came at 34.4 vs. 34.5 consensus.
  • Average hourly earnings came at 0.5% vs. 0.3% consensus.
• The stronger than expected jobs report is a disappointment for bulls because they want a weaker economy that forces the Fed’s hand to cut interest rates.  However, the negative from the jobs report is being outweighed by Apple adding $90B to its stock buyback.  Just by buying its own stock, Apple can engineer its stock to levitate.  Apple stock is heavily weighted in indexes.  As Apple levitates, so do the indexes.

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

Gold is being sold on the strong jobs report.  

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

Oil is being bought on the strong jobs report.

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 🔒 but if investors start looking at the reality of Apple earnings, the indicator will turn 🔒.  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 $2019, silver futures are at $25.88, and oil futures are at $70.40.

S&P 500 futures are trading at 4111  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 235 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.

PacWest In Trouble

Please click here for a chart of PacWest Bancorp stock (PACW).

Note the following:

• The Morning Capsule is about the big picture, not an individual stock.  The chart of PACW is being used to illustrate the point.
• We previously shared with you:

The cockroach theory is that if you see one cockroach, there are more cockroaches.  Due to the rapid rise of interest rates and a potential recession looming, the cockroach theory is applicable to regional banks.

We shared the cockroach theory with you when problems arose at Silicon Valley Bank.  The Arora Report has been scouting for opportunities for our members to make money by shorting banks and also buying long banks that benefit from competitors failing.

• Our call of more bank failures after Silicon Valley Bank (SIVB) and Signature Bank (SBNY) failures continues to be correct.  Some prominent analysts have been saying that bank failures were behind us.  Such calls are clearly proving to be wrong.
• The chart shows when the news broke that PacWest will explore strategic options.  In plain English, this means that the bank is looking for a buyer.
• Normally a stock goes up when a company puts itself up for sale, but here, different mechanics are at play.  In the wake of JP Morgan’s (JPM) deal to acquire First Republic Bank (FRC), we wrote:

The First Republic deal shows that there is no reason for other banks to step up to buy a failing bank.  If regulators are forced to seize the bank, then potential acquirers can buy the assets on the cheap.

• The chart shows a significant drop in PACW stock instead of an upspike.  Why would a buyer buy the bank now instead of waiting for a failure to acquire the bank on the cheap?  The answer might be that there is enough competition to buy banks to make it impractical for an eager buyer to wait for the bank to fail.
• The move in PACW stock shows that the best course for investors is to not get locked in a position and start every day new and analyze based on new data.
• As a full disclosure, yesterday our system gave a signal to short sell PacWest.  However,  there were no shares available to short.  For this reason, PACW short signal was not published.
• As a sympathy play, a signal was given in ZYX Short to add to the existing profitable short position in PACW competitor Western Alliance Bancorp (WAL).  The trade became profitable very quickly.  Yesterday evening, a signal was given to take partial profits on WAL.  With the benefit of hindsight, the signal to take partial profits happened to be given right near the bottom.
• The PACW chart underscores that these days many of the important events are occurring after the regular market close.
• In yesterday’s Afternoon Capsule, we wrote:

Powell was masterful making it difficult for momo gurus to twist his words to run up the stock market.  Nonetheless. momo gurus will try, let’s see what they come up with.

• So far, the only thing momo gurus have come up with is that the down move in PACW and WAL stocks are reasons to fight the Fed.  Failing to come up with anything better, momo gurus are stirring up the frenzy with the mantra “fight the Fed.”
• In another development, a major Tennessee bank First Horizon (FHN) is falling about 40%.  First Horizon had a deal to be bought out by a major Canadian bank Toronto-Dominion Bank (TD).  TD has walked away from the deal.
• Apple (AAPL) will report earnings after the close.  Apple’s earnings will have a significant impact on the stock market.
• Apple analysts believe that Apple is not seeing a slowdown in iPhone sales.  However, Qualcomm (QCOM) said yesterday evening that mobile phone sales are deteriorating.  Qualcomm technology is being used in almost all mobile phones.  In contrast, Qorvo (QRVO), a major supplier of RF components for mobile phones raised its guidance for FY24.
  • Wall Street is positioned for no deterioration in iPhone sales.  If there is significant deterioration in iPhone sales, AAPL stock has significant risk to the downside.
  • Understanding positioning can give you an edge.  To understand positioning, listen to the podcast titled “Market Mechanics: Positioning.”

Jobless Claims

Initial jobless claims came at 242K vs. 245K consensus.

Productivity

The antidote to inflation and a potential recession is higher productivity.  Unfortunately, the data just released shows that productivity is falling, not increasing.  Q1 productivity came at -2.7% vs. -0.1% consensus.

Unit Labor Cost

There is disappointment for those who think inflation is behind us.  The just released new data shows that unit labor cost increased by 6.3% vs. 5.5% consensus.

European Central Bank

European Central Bank (ECB) raised its key interest rates by 25 basis points.  The main interest rate is now at 3.25%.  In The Arora Report analysis, unlike the Fed, which is likely pausing, ECB is likely to continue raising rates.  In our analysis, the terminal rate is likely to be 3.75% – 4% in Europe.

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

Gold is seeing buying on the potential PACW failure.

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 seeing buying on the potential PACW failure.  

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 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 $2044, silver futures are at $25.81, and oil futures are at $68.84.

S&P 500 futures are trading at 4098 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 80 points.

Fed Decision

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 upper band of the support resistance zone.
• The chart shows that the stock market has been consolidating around the upper band of the support/resistance zone.
• RSI on the chart shows that the stock market can easily go in either direction as it is neither overbought nor oversold.
• Stock market bulls have a conviction that after the Fed decision, the stock market will rocket up to the resistance zone shown on the chart.
• Bears say that any move up in the stock market will reverse.
• The Fed will announce its decision at 2pm ET followed by a press conference by Powell at 2:30pm ET.
• The consensus is that the Fed will raise interest rates by 25 basis points and pause.
• Keep in mind the following:
  • Historically, the first reaction to the Fed’s decision is often wrong and subsequently reverses.
  • A pause does not equal a rate cut.
  • Bulls are assuming 100 basis points of rate cuts over the rest of the year.
• In The Arora Report analysis, the Fed is likely to keep interest rates higher for longer.
• There is a dramatic difference between bulls and bears regarding the interpretation of a pause.  Bulls contend that a pause is the start of a new bull market.  Bears contend that a pause is simply prudent, and it does not mean a new bull market because of inflation, risk to earnings, and a potential recession.
• Prudent investors should think of the stock market in six dimensions.  Here are the six dimensions:
  • Macro is bearish.
  • Fundamentals are bearish.
  • Technicals are bullish.
  • Quantitatives are bullish.
  • Liquidity is mixed.
  • Sentiment is bullish.
• The six dimensions provide a simple way for investors to make good judgments about the stock market.  For those who want to build next-level knowledge, there is a podcast available titled “Never Be Confused Again: Six Dimensions Of The Stock Market.”
• The six dimensions are a simple  way to look at the stock market.  Markets are complex.  The best analysis comes from the proven, adaptive ZYX Asset Allocation Model with inputs in ten categories.  Adaptive means the model automatically changes with market conditions.  Please click here to see how adaptiveness is achieved.
• As an actionable item, the output of the ZYX Asset Allocation Model is embodied in the protection bands below.

ADP

ADP is the largest private payroll processor in the country.  It uses its data to give a glimpse of the employment picture ahead of the jobs report that will be released on Friday.

ADP data is very strong.  Employment change came at 296K vs. 142K consensus.

Russia

Russia is claiming that Ukrainian drones attacked the Kremlin.  Putin is safe as he was apparently not in the Kremlin.  Ukraine denies the attack.

The stock market is oblivious, but prudent investors should keep a close eye in case Russia retaliates in a significant manner.

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 bought on fears of more problems in banks. Interestingly, the stock market does not seem to care. 

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  

Iran has seized a second oil tanker.

API crude oil inventories came at a draw of 3.939M barrels vs. consensus of a draw of 1M barrels.

Right now oil is being sold on recession fears.  Interestingly, the stock market is trading assuming no recession. 

The momo crowd is selling oil in the early trade.  Smart money is inactive 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 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 $2022, silver futures are at $25.54, and oil futures are at $69.30.

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 42 points.

AI Road Kill Ahead

Please click here for a chart of Chegg stock (CHGG)

Note the following:

• The Morning Capsule is about the big picture, not an individual stock.  The chart of CHGG is being used to illustrate the point.
• The chart shows when Chegg reported earnings. Earnings were good.  Based on the earnings and the positioning, the stock should have gone up.
• The chart shows that instead of going up, the stock has fallen by about 46%.
• Chegg is an edtech company that helps students with homework.  The company indicated that new student growth is slowing as more and more students are preferring to seek help from ChatGPT instead of from the company’s products.
• We had previously shared with you that the golden age of AI is starting.  Those with knowledge and expert guidance will make a fortune.  But the momo crowd and others who are not highly analytical will likely lose their shirts. CHGG proves the point.
• Recently, the momo crowd has been aggressively buying CHGG stock.  The reason they were aggressively buying CHGG stock was that CHGG had announced that it was integrating ChatGPT with its offerings.  All the momo crowd needed was to hear the buzz word ChatGPT, and they bought the stock.
• In contrast, the last post on CHGG from The Arora Report was that the prior buy signal was canceled as the time stop hit and there was no fill.  Moreover, the buy zone was significantly lower than where the stock was trading at the time of the signal.
• Now, the momo crowd has lost about half of its investment in CHGG.
• CHGG has become the first popular, good company to lose about half of its value due to ChatGPT.
• There will be many opportunities to profit from artificial intelligence on the long side.  However, there will also be many opportunities to profit from artificial intelligence on the short side.  If you have been thinking about learning to short sell so that you can make money irrespective of market conditions, AI has given you another great reason to get started.  The best way to start learning is to subscribe to ZYX Short but not undertake any trades for several months until you become comfortable.
• The FOMC meeting is starting today.
• The momo crowd is counting their chickens before they hatch.  The narrative is that even if the Fed raises rates, it will be the last rate hike, and after this rate hike, the Fed will rapidly cut rates.  There will be no economic slowdown.  Earnings will rapidly increase because of AI as AI will allow corporations to layoff lots of people and reduce costs.
• Momo gurus are distorting history to claim that the last rate hike will coincide with the start of a new bull market.
• In The Arora Report analysis, the foregoing narrative is wrong on many levels.  For example, if AI causes millions of people to be laid off, how will the economy be strong?
• Debt ceiling drama has shifted into a higher gear.  Treasury Secretary Janet Yellen is saying that the government will run out of money on June 1.  This is a lot sooner than expected.
• The last time a debt ceiling crisis occurred was in 2011.  Since then, both Republicans and Democrats have managed to avoid a crisis at the last minute.  In 2011, the U.S. credit rating was lowered by S&P.

Eurozone

April CPI came at 0.7% vs. 0.9% consensus.  Core CPI came at 1.0% vs. 1.1% consensus.

The positive sentiment from lower inflation was countered by a survey showing that 25% of eurozone banks have tightened lending standards and 40% of the banks reported falling demand for credit from businesses.

Australia

The Reserve Bank of Australia, in a surprise move, increased the key interest rate.  This is generating negative sentiment across the globe.

Layoffs

Morgan Stanley (MS) is laying off 3,000 people as deal making slows.  Citigroup (C) is also talking about layoffs.

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 🔒 in 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

Coinbase (COIN) CEO and other insiders are being sued for selling $1B worth of stock on insider information.  Insiders sold their stock weeks before a big fall.

Bitcoin has given up its April gains.

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 $1996, silver futures are at $24.93, and oil futures are at $74.68.

S&P 500 futures are trading at 4175  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 90 points.

Momo Crowd Behavior

Please click here for a chart of First Republic Bank (FRC).

Note the following:

• The Morning Capsule is about the big picture, not an individual stock.  The chart of FRC is being used to illustrate the point.
• Since the momo crowd controls the stock market these days, it is important for investors to maintain a good grasp on momo crowd behavior.
• The chart shows that the momo crowd was buying First Republic Bank stock as soon as trading started at 4am ET even though it was clear that the stock was likely to be worthless.
• The momo crowd was also buying this stock aggressively over the last several days.
• There are indications that many among the momo crowd were selling good stocks, so they could raise cash to buy more FRC stock.
• If the momo crowd did any analysis, they should have known that there was a $20B – $30B hole in First Republic Bank’s balance sheet and First Republic Bank’s tangible bank value when adjusted for mark to market was negative.
  • The foregoing was a clear indication that the most likely course would be for regulators to seize the bank and then sell some or all of the assets.
  • When regulators seize a bank, the stock is often worthless.
• The momo crowd not only did not understand the balance sheet, negative tangible book value, and the mark to market adjustment, they also did not understand that typically a bank is first seized and then sold.  They were simply excited about the bank being sold.  Based on their hope strategy, they were hoping for a big payoff when the bank was sold. 
• Over the weekend, many were gloating on social media about how much money they were going to make Monday when the bank was sold and that investors who short sold would be in trouble.
• Right after First Republic Bank seizure was announced, it was also announced that FDIC was appointed as the receiver.  FDIC in turn entered into a purchase and assumption agreement with JP Morgan (JPM) to assume all of the deposits and substantially all of the assets.  The FDIC and JP Morgan will share in the losses in the loans covered by the loss-share agreement.
• The deal is accretive for JP Morgan.
  • JPM stock is jumping on the news.
  • As a full disclosure, JPM is in the ZYX Buy Model Portfolio.
• As a full disclosure ZYX Short members have a short position in FRC. Since the stock is likely to be delisted and worth zero, the trade is very profitable.  The holy grail of short selling is to short sell a stock that goes to zero.
• Many momo crowd accounts are going to be wiped out. Will the momo crowd learn to do analysis and stop relying on hope strategy?  We will keep a close eye.  The momo crowd’s behavior is very important for all investors as the momo crowd controls the stock market.
• This is a very important week on three fronts:
  • FOMC meeting
  • Earnings
  • Economic data
• FOMC starts meeting tomorrow and will announce its rate decision on Wednesday at 2pm ET.  The rate decision will be followed by a press conference by Powell.
• 162 of the S&P 500 companies are reporting earnings this week.  The most important earning is from Apple (AAPL). Apple (AAPL) earnings will be reported on Thursday after the market close.
• Significant economic data is also being reported this week.  The most important being the jobs report on Friday.
• ISM will be released at 10am ET.  The consensus is 46.8.   A number less than 50 indicates economic contraction.  This number may be market moving.
• Today is the first day of the month.  Blind money flows into Wall Street on the first two days of the month.  Blind money is the money that investors send to Wall Street without any analysis and irrespective of market conditions.  Blind money often provides a lift to the stock market and at a minimum reduces the magnitude of any downswing.

China

China Manufacturing PMI came at 49.2 vs. 51.4 consensus.  The weakness in PMI is hitting oil and several other commodities hard.  The stock market is oblivious.  

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 buying gold in the early trade on the seizure of First Republic by the government.  Smart money is inactive in the early trade.

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

Oil

Oil is seeing selling on weak China PMI data.

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 $2013, silver futures are at $26.18, and oil futures are at $75.39.

S&P 500 futures are trading at 4183 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 22 points.