Oil Predicts Recession

Please click here for a chart of oil futures (CL_F).

Note the following:

• Oil is predicting a recession.
• The chart shows the spike up in oil when Saudi Arabia unilaterally cut production by 1M bpd.
• The Saudi Arabia production cut was announced on a Sunday.  The chart shows that after opening higher, oil closed near the lows.
• The reason oil was not able to rally from Saudi Arabia’s oil production cut was fear of a recession.
• The chart shows that the dip in oil led oil to fall to the support zone followed by a rally. The rally was in sympathy with the stock market belief that there will not be a recession.
• In spite of the stock market buying on momo gurus predicting no landing and urging their followers to buy stocks because of artificial intelligence, the chart shows that oil has significantly pulled back over the last two days.  The reason is renewed fears of a recession.
• The chart shows that oil is now just above the top band of the support zone.
• One argument stock market bulls are advancing is that the drop in oil is due to lack of growth in China.  In The Arora Report analysis, there is some truth to this narrative, but it is not the entire story.  
• Bonds are also predicting a recession.  The negative yield spread between 10-year Treasuries and 2-year Treasuries is 1.005% as of this writing.  This is predicting a recession.
• In The Arora Report analysis, AI is real and  a fortune is to be made over the next seven years.  However, it will not be a straight line.  At times, it will be treacherous.  Remember that at one time, Amazon stock (AMZN) lost 95% of its value.  Serious investors intending on making a fortune from AI need to stay highly disciplined, follow a proven system with a  long track record such as the combination of adaptive ZYX Asset Allocation Model and the unique ZYX Change Method.  
• Further, in The Arora Report analysis, the stock market is totally focused on the benefits of AI but is underestimating the expense as corporations shift to using AI.  When the likes of Nvidia (NVDA), Microsoft (MSFT), Amazon (AMZN), and Google (GOOG, GOOGL) are making money from AI, it is an expense to their customers.  There are very few stand alone beneficiaries of AI, such as Tesla (TSLA).  All in all, AI is not going to change the natural business cycle in the near term.  In this respect, the bullish AI narrative that has investors excited is highly flawed.  

Europe

Just released Flash PMI data is indicating that economic contraction is deepening in Europe.  Here are the details:

• Flash Manufacturing PMI came at 43.6 vs. 44.8 consensus.
• Flash Services PMI came at 52.4 vs. 54.5 consensus.

A PMI of less than 50 indicates economic contraction.

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 🔒 stocks in the early trade.

Gold

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

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

Oil

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is staying above $30,000 on excitement over filings by BlackRock (BLK) and WisdomTree (WT) for bitcoin ETFs.  Sophisticated bitcoin investors are also buying ahead of bitcoin halving in April 2024.  

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 $1930, silver futures are at $22.35, and oil futures are at $68.29.

S&P 500 futures are trading at 4388 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 down 212 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.

Fear Evaporates

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 stock market is driven by the emotions of fear and greed.
• Fear has evaporated and greed has taken over.
• The chart shows an extraordinary event yesterday in the stock market.
  • Wall Street’s fear gauge VIX typically goes up when the stock market falls, especially when popular stocks are hit.
  • The chart shows that yesterday VIX went down as S&P 500 ETF SPY and Nasdaq 100 ETF QQQ went down.
• The chart shows that Tesla (TSLA) fell yesterday.  Retail investors have been  more aggressively buying TSLA than any other stock.
• In yesterday’s Morning Capsule titled “MORNING CAPSULE: TESLA MOVE ON RIVIAN NEWS SHOWS THE REALITY OF INVESTORS, POWELL TESTIMONY, INDIA ASCENDANT,” we shared with you the nonsensical move in TSLA stock on Rivian (RIVN) news with TSLA stock adding $50B in market cap for potential profits of less than $50M on top of $240B in market cap investors added on Ford (F) and General Motors (GM) news prior to Rivian news.
  • In the premarket yesterday, TSLA was trading at almost $280.  It is trading at about $250 as of this writing, a $30 drop from yesterday’s premarket high.
• The chart shows when an Arora signal was given to short sell TSLA stock for a very, very short term trade.  The signal has turned out to be nicely profitable.
• Just like retail investors have been pouring money into TSLA stock, institutional investors have been pouring money into Nvidia (NVDA) stock.
  • The chart shows that NVDA stock also fell yesterday.
• The chart shows Arora signal to take profits in the NVDA trade around position prior to the drop in the stock.
• We have previously shared with you that semiconductors are the leading sector and prudent investors should closely watch semiconductor ETF SMH.
• The chart shows that semiconductors also fell yesterday.  Especially hard hit was retail investors’ favorite semiconductor stock AMD.
• Why did Wall Street’s fear gauge VIX drop when SPY, QQQ, SMH, TSLA, and NVDA also dropped?  The reason is twofold:
  • First, the momo crowd believes that there is no longer a need for protection as fear has totally evaporated.
  • Second, it has to do with Wall Street mechanics.  Investors can gain a significant edge by understanding Wall Street mechanics.  Many of Wall Street mechanics are closely guarded secrets because of the high value.  This makes it difficult for most investors to learn them.  The Arora Report has revealed these secrets in a series of podcasts.  These podcasts are available in Arora Ambassador Club.

Jobless Claims

Initial claims came at 264K vs. 259K consensus.  This is a leading indicator, and as such, carries heavy weight in the adaptive ZYX Asset Allocation Model with inputs in ten categories.  In plain English, adaptiveness means that the model changes automatically with market conditions.  The adaptiveness is partly behind the success of The Arora Report.  Most models on Wall Street are static.  They work for a while and then they stop working when conditions change.  Click here to see how adaptiveness is achieved.

Powell

Powell will give a second day of testimony.  Q&A may move the markets.

U.K.

Bank of England has raised its key interest rate 50 basis points to 5.0% vs. a consensus of a rise of 25 basis points to 4.75%.  You had an advanced notice, we wrote in yesterday’s Morning Capsule:

The data may force Bank of England’s hand to raise interest rates again.

Norway

Norges Bank, Norway’s central bank, has raised its interest rate by 50 basis points.  Norges Bank has also indicated that more rate hikes may be coming.

Switzerland

Swiss National Bank has raised its key interest rates by 25 basis points to 1.75%.  Swiss National Bank is indicating that more rate hikes may be coming.

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

Previously it was BlackRock (BLK), now WisdomTree (WT) has also filed for a bitcoin ETF.  The news has moved bitcoin above $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 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 $1934, silver futures are at $22.53, and oil futures are at $71.01.

S&P 500 futures are trading at 4398  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 91 points.

Exuberance Without Analysis

Please click here for a chart of Tesla (TSLA).

Note the following:

• The Morning Capsule is about the big picture, not an individual stock.  The chart of Tesla stock is being used to illustrate the point.
• Tesla (TSLA) is a great company.  None of the following is a commentary on Tesla.  The purpose here is solely to illustrate the behavior of investors right now.  It is important for prudent investors to understand this behavior.
• The chart shows when the news broke that Ford (F) was going to use Tesla’s charging network.  This news was truly a big deal.  The subsequent move in Tesla stock is justified.
• The chart shows when the news broke that General Motors (GM) was going to use Tesla’s charging network.  The news made it inevitable that Tesla would become the charging standard in the U.S.  The move up in Tesla stock on the news is justified.
• After Ford and General Motors joined Tesla’s charging network, it was expected that there would be announcements over the coming days from other automakers about joining Tesla’s charging network.  This expectation resulted in a further move in Tesla’s stock.
• The chart shows when the news broke that Rivian (RIVN) will use Tesla’s charging network. Here are the key points:
  • On the Rivian news, Tesla stock added about $40B in market capitalization.  (If the calculation is started not when rumors started but when the news broke, the increase in market capitalization is $24B.)
  • In the after hours, investors excited about Rivian news continued to aggressively buy Tesla stock, adding another $10B in market capitalization for a total add of $50B.  (Some bulls will contend that part of the rise was due to India news, but that is nonsense as India news was widely expected and discounted in the stock.)
  • All in all, investors added $50B to Tesla’s market capitalization on the Rivian news.  This is on top of $240B in market capitalization investors added on Ford and General Motors news prior to Rivian news.
  • Rivian hardly has any vehicles on the road.
  • Even in an optimistic scenario, Rivian will likely add less than $50M to Tesla’s profit.
  • The sum total is that in an optimistic scenario, a profit of less than $50M added $50B in market capitalization.
• Prudent investors should ask a very simple question, “Are investors doing any analysis before risking their money?”
• The foregoing illustrates the current state of exuberance in the stock market.
• Sentiment has now turned very positive according to The Arora Report proprietary indicators.  These proprietary indicators provide members of The Arora Report with a significant edge in the markets.  It is not extremely positive yet.  When sentiment turns extremely positive, it is a contrary signal.  In plain English, this means a sell signal.

Powell Testimony

Powell will testify in front of Congress today and tomorrow.  Will Powell take on the momo crowd in Q&A?  The momo crowd and the Fed are at complete odds.

• Most of the momo crowd believes the Fed will cut interest rates three times this year.
• The Fed says it plans to increase interest rates twice this year.

The Fed has released prepared remarks from Powell.  Here are the key points:

• Inflation remains over the 2% goal.
• The economy is facing headwinds from tighter credit.
• Reducing inflation is likely to require a period of below trend growth.
• Reducing inflation will need softening labor market conditions or higher unemployment.

Stark Reminder From U.K.

The momo crowd is running up the stock market on the belief that the fight against inflation is over.  The latest data from the U.K. shows that the momo crowd’s belief is wrong.  Future data in the U.S. may turn out similar to the U.K.  Inflation in the U.K. is running hotter than expected.  Here are the details:

• In the U.K., CPI came at 8.7% year-over-year vs. 8.4% consensus.
• CPI came at 0.7% month-over-month vs. 0.5% consensus.
• Core CPI came at 7.1% year-over-year vs. 6.8% consensus.
• Core CPI came at 0.8% month-over-month vs. 0.6% consensus.

The data may force Bank of England’s hand to raise interest rates again.

Modi Visits U.S.

India’s Prime Minister is visiting the U.S.  The purpose of the visit is to strengthen ties between the two countries and contain China.  Here are the key points:

• India is ascendant.
• India is already a world leader in providing information technology services.
• Now, manufacturing is increasingly moving out of China and into India.
• Foreign money is rushing into Indian stocks.
• Tesla CEO Musk met with Modi.  Modi has invited Musk to make investments in India in the space and electric vehicle sectors.
• India is the largest opportunity for long term investors in the coming years.  
• ZYX Emerging has covered India continuously for 16 years.

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

Enthusiasm continues in bitcoin on BlackRock (BLK) filing for a bitcoin ETF.

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 $1941, silver futures are at $22.97, and oil futures are at $71.33.

S&P 500 futures are trading at 4423 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 98 points.

Optimism Over China

Please click here for a chart of China ETF ASHR.

Note the following:

• Both China and the U.S. are calling Secretary of State Blinken’s visit to China a success.  There is optimism over the thawing of relations between the world’s number one and number two economies.
• In The Arora Report analysis, there is tactical improvement in relations between China and the U.S.  Strategically, nothing has changed.  China still wants to displace the U.S. as the number one superpower.  After enabling China’s rise, U.S. politicians have now woken up and are determined to not let China succeed.  To understand why China softened its short term stance towards the U.S., all one has to do is look at the chart linked above.  
• The chart shows that Chinese stocks staged a big rally on hopes of COVID opening strength.  Foreign money rushed into China, projecting the Chinese economy would take the same trajectory post COVID as the U.S. and other economies.
• The trendlines on the chart show that the Chinese stock market has pulled back from COVID opening rally instead of rising further as investors had hoped.
• In The Arora Report analysis, the reason for the pullback in the Chinese stock market is that the Chinese economy has stalled as more and more production is moving out of China. The U.S. is determined to not be so dependent on China for supply chains.  
• The chart shows the artificial intelligence rally in China, marked as AI on the chart.
• The rally in China on the AI frenzy is muted compared to the rip roaring rally in the U.S.  Here are the key points:
  • China has been dependent on the U.S. for advanced semiconductors.
  • AI development in China is now being negatively impacted by U.S. restrictions on exports of advanced semiconductors to China.
  • China is trying to catch up on advanced semiconductors, but in The Arora Report analysis, it will take a very long time.  
  • Even though most of the excitement lately is in generative AI due to ChatGPT, AI is a broad field.
  • In The Arora Report analysis, China is on pace to catch up with the U.S. on generative AI over the next year.
  • In many other areas of artificial intelligence, China is ahead of the U.S.
• In The Arora Report analysis, expect a ferocious race between China and the U.S. on artificial intelligence.

Post Quadruple Witching

Last week we shared with you,

• 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.

In the early trade, there is slight give back from last week’s expiration driven gains.  The give back would have been significantly higher if it was not for China optimism.

Barn Burner Housing Starts

Housing starts came at 1.631M vs. 1.40M consensus.

Building permits came at 1.491M vs. 1.425M consensus.

The Fed’s fight against inflation is not working when it comes to housing.

Builders are significantly reducing incentives and in many cases, raising prices.  The reason is that the supply of existing homes is very low, as nobody with a 3% mortgage wants to sell.  The result is that buyers are rushing into new construction, causing insatiable demand for new housing.

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

Buying in bitcoin continues on the prospect of a BlackRock (BLK) ETF.

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 $1954, silver futures are at $23.68, and oil futures are at $71.25.

S&P 500 futures are trading at 4443  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 88 points.