Protecting Against Default

Please click here for a chart of 20-year Treasury Bond ETF (TLT).

Note the following:

• It may seem oxymoronic but big institutional investors are buying long dated Treasury bonds to protect themselves against a potential U.S. debt default.  The reason long dated Treasury bonds are being bought is they went up during 2011 debt ceiling negotiations.  In 2011, the U.S. credit rating was downgraded.
• The presumption is that if debt ceiling negotiations break down, long bonds will move higher.  As a result, TLT will break above the resistance zone shown on the chart.
• The chart shows the trendline and the big drop in TLT due to the Fed rapidly raising interest rates.
• Large investors are also buying gold to protect themselves.
  • Investors buying gold here need to be concerned that silver was hit hard yesterday due to selling based on inflation data from China.  As a full disclosure, The Arora Report had given a signal to take partial profits in silver ETF SLV prior to the drop.
  • There are times when gold leads silver and then there are times when silver leads gold.
  • So far this year, gold has been leading.
  • It is worth watching to see if silver now starts leading.
• The debt ceiling meeting between President Biden and Speaker McCarthy has been postponed.  This is being seen as a sign of progress. The reason it is being seen as a signal of progress is that it is being interpreted as a sign of progress in lower level talks.

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 hoping for a short squeeze.  Remember, it is Friday, and short squeezes often occur on Fridays.  Smart money is 🔒 in the early trade.

Gold

The momo crowd is 🔒 gold, but selling silver, 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 has fallen below $27,000.  Crypto bulls are disappointed that the calls from crypto gurus that bitcoin would go to $50,000 and higher in the event of a banking crisis have so far proven wrong.

Markets

Our very, very short-term early stock market indicator is 🔒 but expect the market to open higher.  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 $2016, silver futures are at $24.12, and oil futures are at $71.31.

S&P 500 futures are trading at  4157 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 99 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.

No Raises

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 Microsoft is being used to illustrate the point.
• The chart shows that Microsoft stock has taken three legs up this year on artificial intelligence frenzy related to ChatGPT.
• Investors have bid up Microsoft’s stock as shown on the chart in spite of significant deterioration in its business in the same way investors have bid up Apple (AAPL) stock in spite of Apple being on track for declining revenues three quarters in a row.
• Just like Apple, Microsoft is an expensive stock.  Microsoft is trading at a PE of over 33, and Apple is trading at a PE of over 28.
• Microsoft has over $104B cash on its balance sheet.
• Prudent investors should pay attention that this market is levitating primarily because of investors running up large caps such as Microsoft, Apple, Meta (META), Google (GOOG, GOOGL), Amazon (AMZN), and Nvidia (NVDA).  With the exception of Nvidia, the business of all of these companies is deteriorating.  The market is safer when the strength is broad based and stock prices are aligned with strengthening business; this is not the case now.  
• Today, Microsoft has introduced a new wrinkle.  In spite of being cash rich and having an expensive stock that Microsoft can use as a currency, Microsoft is going to finance its shift to artificial intelligence, in part by not giving its employees raises.  This is after thousands of layoffs.
• Expect the pause on raises to spread across Information Technology.  
• Inflation at the producer level has eased.  This is good news.  Here are the details:
  • Headline PPI came at 0.2% vs. 0.3% consensus.
  • Core PPI came at 0.2% vs. 0.3% consensus.
  • Initial jobless claims came at 264K vs. 247K consensus.  From the data we publish every week, readers will notice that initial claims have significantly jumped up.  This is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories.  Our model has proven itself over a long period of time in both bull and bear markets.  One of the reasons that the model is so successful is that it automatically changes in response to market conditions.  Most models used on Wall Street are static; they work for a while and then stop working when market conditions change.  Please click here to see how the adaptiveness is achieved.
• Expect a tug of war between the bears and bulls on the latest jobless claims data.  Expect bulls to claim that the latest data is good news as it will force the Fed to lower interest rates.  Expect bears to contend that the data is bad news because it will ultimately negatively impact earnings.
• For most investors, it should only be a matter of common sense.  Tech workers are already feeling insecure because of layoffs.  Now, they are not going to get raises.  Do you expect workers to continue spending at the same rate that they have been?
• There is bad news on regional banks again.  Deposits have been flowing out of PacWest (PACW).  Western Alliance (WAL) says that its deposits are stable.  Nonetheless, several regional bank stocks are being hit.
• As an actionable item, the sum total of the foregoing is summed up in the protection band below.

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 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 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 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 $2039, silver futures are at $24.90, and oil futures are at $71.32.

S&P 500 futures are trading at 4137 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 194 points.

CPI

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 continues to consolidate around the upper band of the support/resistance zone.
• The chart shows that yesterday the volume was the lowest of the year.
• RSI on the chart shows that the stock market can go either way.
• Investors are breathing a  sigh of relief this morning as CPI data came as expected.  Here are the details.
  • Headline CPI came at 0.4% vs. 0.4% consensus.
  • Core CPI came at 0.4% vs. 0.4% consensus.
• Stock market bulls are focusing on the technicals and will attempt to run up the stock market to the first resistance zone shown on the chart.
• Stock market bears are focused on a potential recession later this year or in 2024.
• Bulls dismiss the talk of a recession as they believe there will be an immaculate landing.
• In The Arora Report analysis, the probability of a recession is still 70%. 
• In The Arora Report analysis, if a hard landing occurs, earnings will go down 15% – 20%.  
• In The Arora Report analysis, the base case right now is a shallow recession in which earnings will go down about 10%.  
• President Biden met with congressional leaders regarding the debt ceiling.  No progress was made.
• The cost of protection against a U.S. default is rising rapidly.
• This morning, the momo crowd is aggressively buying stocks.
• As an actionable item, the sum total of the foregoing is in the protection band shown below.

A New Feature

We are testing a new feature giving investors a heads up of the earnings after hours that have the potential to generate signals. A signal was given after earnings on AFRM in ZYX Short.  AFRM is still in the short zone.  Please provide us feedback if you would like us to do further testing on this feature.  Write to subscription@thearorareport.com.

In the first nine days of May , 12 new ideas were given in ZYX Short.  Lately, ZYX Short has been very profitable.  Markets go in cycles.  There are times when ZYX Buy is very profitable, and there are times when ZYX Short is very profitable.  For most investors to generate consistent profits, it makes sense to subscribe to both ZYX Buy and ZYX Short.  For longer term investments using ETFs, ZYX Allocation is the best choice.  Growth is in emerging markets and not in the U.S.  For this reason, ZYX Emerging is important for most investors.  Corporate Bundle 1 provides the best mix.  Please read the Accelerating Wealth Generation section of the Trade Management Guidelines. 

Momo Crowd And Smart Money In Stocks

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

Gold

There is 🔒 in gold after the CPI number on pullback in yields and weaker dollar.

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 inventories came at a build of 3.618M barrels vs. a consensus of a draw of 1.600M barrels.

The momo crowd is 🔒 in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Binance has walked away from the agreement to buy Voyager’s assets for $1B.

Markets

Our very, very short-term early stock market indicator is 🔒 but expect the market to open 🔒.  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 $2046, silver futures are at $26.15, and oil futures are at $73.59.

S&P 500 futures are trading at 4167  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 158 points.

Artificial Intelligence Frenzy

Please click here for a chart of Advanced Micro Devices stock (AMD).

Note the following:

• Debt ceiling brinkmanship is ahead. Biden is meeting with congressional leaders today. So far the stock market is not concerned as the belief is that there will not be a default on the U. S. debt.
• In The Arora Report analysis, as we get closer to June, some anxiety will start creeping into the stock market if both sides do not come to an agreement.  The most likely scenario is for both sides to come to a short term agreement and the matter drags on.
• A fortune is to be made in artificial intelligence. However, investors will need to be very careful as the AI frenzy spreads.
• The chart illustrates why investors need to be careful.
• AMD is one of the artificial intelligence stocks that The Arora Report named early on.  Right now AMD is far behind NVIDIA (NVDA) and does not have any material AI revenues.
• The chart shows the AMD  stock ran up going into earnings as the momo crowd bought on hope strategy.
• Earnings were worse than the consensus and significantly worse than the whisper numbers. The most concerning was AMD’s data center revenues.
• The chart shows The Arora Report gave a signal to short sell AMD stock.
• The chart shows that the stock fell as investors digested the earnings.
• The chart shows when the Arora signal to take profits on the short sale was given.
• The chart shows when the news came out that  Microsoft (MSFT) was going to finance AMD’s artificial intelligence chip.
• The chart shows when Arora buy signal was given.
• The chart shows that the stock dipped close to the low end of the AMD buy zone giving a good average price for those who scaled in the buy zone.
• The news turned out to be wrong.  MSFT denied that it was financing AMD’s artificial intelligence chip. Since the reason for buying AMD in the short term was gone, and AMD is too expensive to hold for the longer term at this time, an Arora signal was given to take profits and exit the position.
• The chart shows when latecomers came in and aggressively started buying AMD stock.  The stock started running up because several social media gurus started hyping AMD stock on the old wrong news that MSFT was going to finance AMD’s AI chip.  These gurus did not tell their followers that the news was old and MSFT had already issued a statement that the news was wrong.
• The chart shows a strong move up as investors aggressively bought AMD stock on the wrong news that was already denied.
• The foregoing is an illustration as to why investors need to be careful regarding the AI frenzy.

A New Feature

Yesterday in the Afternoon Capsule we tested a new feature giving investors a heads up of the earnings after hours that had the potential to generate signals.  Two signals were given in ZYX Short on PYPL and PLTR.  Both trades have been profitable.  Profits have been taken on PLTR and the trade exited this morning.  Partial profits have been taken on PYPL. Please provide us feedback if you would like us to do further testing on this feature.  Write to subscription@thearorareport.com.

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

For longer-term, please see oil ratings.

Bitcoin

Bittrex, once one of the largest crypto exchanges, has filed for bankruptcy after being sued by the SEC.  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 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 $2036, silver futures are at $25.76, and oil futures are at $72.43.

S&P 500 futures are trading at 4136  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 98 points.

Buffett Warns

Please click here for a chart of Warren Buffett’s company Berkshire Hathaway (BRK.B).

Note the following:

• The morning capsule is about the big picture, not an individual stock. The chart of BRK.B is being used to illustrate the point.
• Warren Buffett is the most successful investor of our time.  Buffett, along with his partner Charlie Munger, provided their insights at the so-called Woodstock of Capitalism in Omaha, Nebraska over the weekend.
• The chart shows the period in which money flew into Berkshire stock on its presumed safety in the financial sector.  BRK.B has a 12.93% weighting in the financial sector ETF XLF. After the banking crisis, investors did not want to buy other financial stocks, but to maintain their portfolio weighting in financial stocks they bought BRK.B.
• In The Arora Report analysis, buying Berkshire stock as a proxy for financial stocks is a mistake.  Certainly, Berkshire has large insurance operations and holdings in bank stocks, but it also owns a major railroad, Burlington Northern, as well as electric utility company MidAmerica Energy.  Apple (AAPL) is also a very important holding of BRK.B.
• RSI on the chart shows that the stock has lost internal momentum.  This is noteworthy at a time when Apple stock has made a major up move and there was a lot of excitement about the meeting in Omaha.  Prudent investors should take notice. 
• Buffett said that the incredible period for the U.S. economy is coming to an end.
• Buffett also expects earnings at a majority of its operations to drop this year.
• Munger said that investors should get used to making less money.
• For those desiring next-level information, there is a multi part series in the Arora Ambassador Club analyzing Buffett’s 41 holdings.
• Janet Yellen is warning of economic chaos and a constitutional crisis if the debt ceiling is not raised.  Biden is meeting with congressional leaders tomorrow to resolve the debt ceiling standoff.
• The yield on one-month Treasuries has spiked to 5.488% as of this writing as investors fret over the debt ceiling issue.  The yield on one-month Treasuries is now the highest along the yield curve.
• Investors are waiting for CPI data to be released Wednesday at 8:30am ET and PPI on Thursday at 8:30am ET.
• Anticipating that the inflation data might not favor aggressively buying stocks, momo gurus are already laying the groundwork to run up the stock market even if the data is bad. The new momo narrative taking shape is that inflation no longer matters because the Fed will cut interest rates and Apple stock, due to a major buyback, will drive the entire stock market higher.
• In The Arora Report analysis, a majority of the rally on Friday was the result of a short squeeze and aggressive option buying.
• Investors need to be mindful that in the short term, market mechanics can take over and drive the stock market, irrespective of fundamentals and macro.  For those wanting an edge, there are several podcasts available on market mechanics in the Arora Ambassador Club.
• A short squeeze is occurring in regional banks in the early trade this morning.  This is adding to the positive sentiment.
• Here is the key question for investors: Will the short squeeze continue or will the fundamentals and macro reassert themselves?

Chinese Frenzy

At a time when investors are concerned about U.S. banks, a trading frenzy has started in Chinese bank stocks.  In addition to Chinese investors, foreign money is flying in to buy Chinese bank stocks.  The stocks being bought include Bank of China and China Citic Bancorp.

For U.S. based investors who are interested in the Chinese bank rally and do not want to take the risk of buying Chinese bank stocks, a simpler way is to buy ETF ASHR.  This comment is in response to your questions.  ASHR is covered in ZYX Emerging.  Please note that ASHR was in the buy zone but is now above the buy zone.

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

Binance, the world’s largest crypto exchange, had to halt bitcoin withdrawals twice during the last 24 hours.  This is causing negative sentiment and causing bitcoin to drop below $28,000.

Markets

Our very, very short-term early stock market indicator is 🔒 but expect the market to open 🔒.  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 $2032, silver futures are at $25.86, and oil futures are at $73.07.

S&P 500 futures are trading at 4155 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 89 points.