WEEKLY STOCK MARKET DIGEST: $4 TRILLION OF QUADRUPLE WITCHING, DO NOT TRUST THE FED AND AI FRENZY

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By Nigam Arora & Dr. Natasha Arora

Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report

Please scroll down for the section ‘Protection Bands and What To Do Now.’

 

FOUR TRILLIONS OF QUADRUPLE WITCHING

To gain an edge, this is what you need to know today.

Quadruple Witching

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

Note the following:

  • The chart shows the trendline of ascent is very steep.  Such a steep trendline occurs only on extraordinary themes.  The theme right now is artificial intelligence.
  • The chart shows that QQQ is closer to the resistance zone than the support zone.  Therein lies the risk.
  • The chart shows that QQQ has quickly moved very far away from the 200-day moving average.  This also illustrates high risk.
  • RSI on the chart is diverging.  In plain English, it means that as the price is going higher, RSI is not.  This is a negative signal.
  • Today is quadruple witching.  In quadruple witching, stock index futures, futures options, stock options, and single stock futures expire.
  • The notional value of the derivatives expiring today is over 4T dollars.  The expiration is to the upside.
  • Looking over the trading data, it is clear that a significant part of the rally this week has been driven by approaching quadruple witching.
  • Historically, the move up related to quadruple witching reverses the following week.
  • Expect significant volatility as various contracts expire.

Japan

Bank of Japan (BOJ) left rates unchanged.

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 🔒 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 was breaking down below $25,000 when the news came that BlackRock (BLK) was filing for a bitcoin ETF.  The news stopped the breakdown in its tracks.

Markets

Our very, very short-term early stock market indicator is 🔒 due to quadruple witching.  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 $1978, silver futures are at $24.28, and oil futures are at $70.97.

S&P 500 futures are trading at 4481  as of this writing.  S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are up 57 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.

 

CONSUMER CONTINUES TO SPEND, ECB HIKES RATES

To gain an edge, this is what you need to know today.

Consumer Keeps Recession At Bay

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 even after Fed torpedoed momo gurus’ narrative of three rate cuts this year, the stock market continues to levitate above the top band of the top support/resistance zone.
  • The chart shows that RSI has rolled over.  This indicates the stock market is losing its internal momentum.
  • In the Afternoon Capsule we wrote:

In The Arora Report analysis, the Fed is talking about increasing rates twice this year.  In contrast, the momo crowd has run up the stock market based on the assumption the Fed will cut rates three times this year.

  • After Powell’s conference yesterday, momo gurus have zero credibility on this issue now.  However, it does not matter in practical terms because momo gurus have legions of followers who do not do any analysis on their own.  Expect momo gurus to come out with new narratives to run up the stock market.
  • The U.S. economy is about 70% consumer based.  For this reason, prudent investors pay attention to retail sales.  The just released data shows that the consumer continues to spend.  Here are the details:
    • Retail Sales came at 0.3% vs. 0.0% consensus.
    • Retails Sales ex-auto came at 0.1% vs. 0.1% consensus.
  • Consumers in the lower income group continue to spend heavily by charging on their credit cards.  Consumers in the middle class continue to spend by depleting their savings.  Consumers developed the habit of excessive spending due to the free money that the government distributed during the pandemic.  Now the free money is gone but the consumer has not changed their spending habits.
  • Excessive consumer spending has kept the recession at bay so far.
  • Here is the key question:  What will happen when consumers max out their credit cards and deplete their savings?
  • Consumers have not made student loan payments since the pandemic.  Consumers are likely to have to start making student loan payments beginning in September.  What will happen to consumer spending in September?
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Jobless Claims

Jobless Claims are a leading indicator and carry heavy weight in the adaptive ZYX Asset Allocation Model with inputs in 10 categories.  Please click here to see the 10 categories.

Initial Jobless Claims came at 262K vs. 251K consensus.  This indicates that the job picture is beginning to weaken.

Europe

ECB hiked its key interest rate to 3.5% from 3.25%.

ECB is indicating that more rate hikes are to come.

Japan

BOJ is meeting tomorrow.  Investors are eagerly awaiting the decision.

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

Two crypto exchanges in Korea are halting withdrawals.  Bitcoin has dipped below $25,000.

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 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 $1944, silver futures are at $23.42, and oil futures are at $69.08.

S&P 500 futures are trading at 4403 as of this writing.  S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4318, 4200, and 4000.

DJIA futures are down 12 points.

 

INFLATION AT THE PRODUCER LEVEL EASES, FED DECISION AHEAD

To gain an edge, this is what you need to know today.

PPI

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 market is now comfortably above the top band of the top support/resistance zone.
  • The resistance zone shown near the top of the chart is now the new magnet.
  • RSI shown on the chart indicates that the market is very overbought.  Overbought markets tend to be vulnerable to a pullback on the slightest bad news.
  • Right now stock market bulls believe that there is no negative news on the horizon and AI frenzy will carry the stock market much higher.
  • Inflation at the producer level is receding.  Here are the details of the just released Producer Price Index (PPI).
    • Headline PPI came in at -0.3% vs. -0.1%.
    • Core PPI came in at 0.2% vs. 0.2% consensus.
  • The prior Arora call that goods inflation would quickly come down has proven spot on.  PPI reflects goods inflation.
  • In The Arora Report analysis, the real issue is core services inflation ex shelter.  There is a high probability that this part of inflation is sticky.  Right now the crowd is ignoring it.  If this inflation turns out to be sticky, the momo crowd scenario of three rate cuts this year will not come true.  For those wanting next level information, listen to the podcast “Don’t Be A Hero: Six Dimensions Of The Stock Market.”  The podcast is available in Arora Ambassador Club.
  • FOMC will announce its rate decision at 2pm ET.  The consensus is for a pause on rate hikes.
  • Powell conference is at 2:30pm ET.  Powell is likely to move the markets.  Will Powell add caution or add to the exuberance that the AI frenzy has generated?
  • A simple data point to understand the state of the market is that yesterday was the 13th day in a row Tesla (TSLA) stock went up.  This is the longest winning streak in the company’s history.  In the early trade, TSLA stock is up 0.44%.
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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 range bound.

Markets

Our very, very short-term early stock market indicator is 🔒 and will depend on what Powell says.  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.

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Gold futures are at $1966, silver futures are at $23.98, and oil futures are at $70.05.

S&P 500 futures are trading at 4421 as of this writing.  S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.

DJIA futures are down 80 points.

 

AGGRESSIVE BUYING IN AI STOCKS ON AS EXPECTED CPI, UNEXPECTED CHINA MOVE

To gain an edge, this is what you need to know today.

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 the market broke above the top band of the top support/resistance zone yesterday.  As we shared with you in previous Capsules, the breakout was caused by the momo crowd buying on hope strategy ahead of CPI and retail investors buying  stocks that were pumped over the weekend.
  • The chart shows that the stock market is staying above the top band of the support/resistance zone after the release of CPI data.
  • RSI shown on the chart is at 89.64.  This indicates a very overbought condition.
  • CPI came mostly as expected.  Here are the details:
    • Headline CPI came at 0.1% vs. 0.2% month-over-month consensus.
    • Core CPI came at 0.4% vs. 0.4% month-over-month consensus.
  • The Fed’s target for inflation is 2%.  Core CPI, when the latest data is annualized, is at 4.8%.  Year-over-year Core CPI is at 5.3%.  This indicates that there is more work left for the Fed to do.
  • For the time being, stock market bulls are ignoring that the Fed has more work to do and that 4.8% inflation is still too high.
  • The momo crowd is aggressively buying AI stocks on the release of CPI data.
  • The following two simple data points will help you understand this market.
    • Yesterday, Apple (AAPL) stock hit a record high.  Apple is the biggest stock and drives the indexes.  Of special interest is that Apple is on track for the third quarter in a row of declining revenues.  Further growth in services has also been slowing.  Services have been the driver of Apple’s growth.
    • Tesla (TSLA) gained for 12 consecutive days at yesterday’s close and is up an additional 1.36% in the premarket today.  Tesla stock has just traced the longest winning streak in Tesla’s history.
  • The presumption is that after the CPI data, the Fed will likely skip the rate hike when it announces its decision tomorrow.
  • The probability is 66% that the Fed will raise rates in July.
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.

Unexpected China Move

In an unexpected move, People’s Bank of China cut a key lending rate.  China is moving to stimulate its economy.

On the presumption that the rate cut will increase the sales of luxury goods in China, stocks of European luxury goods companies are moving higher.

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 seeing buying after the release of CPI data.

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 $1978, silver futures are at $24.24, and oil futures are at $69.16.

S&P 500 futures are trading at 4413 as of this writing.  S&P 500 futures resistance levels are 4460, 4600 and 4713: support levels are 4318, 4200 and 4000.

DJIA futures are up 98 points.

 

STOCK MARKET BULLS HAVE GUN LOADED AND FINGER ON THE TRIGGER TO AGGRESSIVELY BUY – CPI AND FOMC AHEAD

To gain an edge, this is what you need to know today.

Gun Loaded, Finger On The Trigger

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 band of the resistance zone.
  • There are two very important events ahead.
    • Consumer Price Index (CPI) will be released on Tuesday at 8:30am ET.
      • Consensus for headline CPI is 0.2%.
      • Consensus for Core CPI is 0.4%.
      • In addition to the headline number and Core CPI, there are many other details in this inflation report.
      • Irrespective of the CPI data, expect momo gurus to cherry pick data to come up with a reason to aggressively buy stocks.
    • FOMC is set to start its meeting Tuesday.  The rate decision will be announced on Wednesday at 2pm ET followed by Powell’s press conference at 2:30pm ET.
      • The consensus is that the Fed will skip a rate hike.
      • The consensus is that the statement or Powell will say the Fed is going to wait to see the impact of interest rate hikes so far.
      • The consensus is that Powell will be dovish.
      • Unless the Fed and Powell are extra careful to make sure that momo gurus cannot twist their words, expect momo gurus to twist the Fed’s and Powell’s words to promote aggressive buying of stocks.
  • In addition to CPI and the Fed’s decision, Producer Price Index (PPI) will be released on Wednesday 8:30am ET, Retail Sales and Initial Claims will be released Thursday at 8:30am ET.
    • Consensus for headline PPI is – 0.1%.
    • Consensus for Core PPI is 0.2%.
    • Consensus for Retail Sales is 0.0%.
    • Consensus for Retail Sales ex-auto is 0.1%.
    • Consensus for Initial Claims is 251K.
  • The technicals on the chart are picture perfect for a decisive breakout to occur above the top band of the resistance zone.
  • If a breakout occurs, the top resistance zone on the chart will be the magnet.
  • Based on the technical setup and anticipation of momo gurus successfully twisting the CPI data and the Fed’s words, bulls have the gun loaded and their finger on the trigger to aggressively buy stocks.
  • Prudent investors know that the macro and fundamentals are negative, but they also know that market mechanics are powerful.  For those interested in next level information, a new podcast titled “Don’t Be  Hero: Six Dimensions Of The Stock Market” is in post production and will be live shortly.  The podcast will be available in Arora Ambassador Club.
  • There are several flies in the ointment for the bulls’ plan to succeed.
    • The chart shows that RSI is overbought and has crossed below the signal line.  This indicates that the stock market is very vulnerable to a pullback at the slightest disappointment.
    • Volatility Index (VIX), which is also known as Wall Street’s fear gauge, is showing a setup that often leads to a stock market reversal. The setup includes the following:
      • VIX below 14.
      • On Friday, VIX closed at 13.83.
      • VIX going higher along with the stock market going higher.
      • On Friday, VIX closed up 1.32% when the stock market also went up.
    • The positive technical setup is almost entirely due to seven stocks.  These stocks are Apple (AAPL), Amazon (AMZN), Google (GOOG, GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).  Without these seven stocks, the stock market would have been flat year to date.
    • There are two different definitions of a bull market.  Right now, the media is focused on one definition and that is a 20% rise above the low.  According to this definition, the 248 trading day bear market, the longest since 1948, has ended.  This would have not been possible without these seven stocks.  This is an indication of an unhealthy stock market.  An unhealthy stock market does not mean it will not go up in the short term.
    • Last week, the laggards such as small caps (IWM), micro caps (IWC), financials (XLF), industrials (XLI), and materials (XLB) started moving up.  The reason behind the move is that money managers have no consequences for losing clients’ money, but it is a career suicide to significantly lag behind their benchmarks.  The money managers who are underweight in the seven magnificent stocks are using the strategy of buying laggards to catch up.  However, such money managers also have their fingers on the trigger to sell the seven magnificent stocks.  If there is a down move in the seven magnificent stocks, the entire positive technical setup may turn into a negative setup.
  • Even though the consensus is for inflation data to be good, there is a fair probability that the data may be worse than the consensus.
  • Powell and the Fed have previously demonstrated that they are capable of being careful to phrase their narrative in a manner that it becomes very difficult for momo gurus to twist their words.  Could Wednesday be one of those times?
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.
See also  HOTTER PRODUCER PRICE INDEX, THE POWER OF ‘PICKS AND SHOVELS’ PLAY

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 range bound.

Markets

Our very, very short-term early stock market indicator is 🔒.  The reason that the indicator is not positive, even with that knowledge, is that many hedge funds are likely to sell into any strength.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates and bonds are range bound.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1979, silver futures are at $24.37, and oil futures are at $68.53.

S&P 500 futures are trading at 4360 as of this writing.  S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

DJIA futures are up 35 points.

 

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Nigam Arora

Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.

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