Jobs Report

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 an island pattern has formed.  After a run like the one that has just occurred from the AI frenzy, an island formation tends to be a reversal pattern.  However, for an island reversal to be a stronger signal, the size of the gap on the right hand side should have been larger.  If the stock market goes lower from here, the island pattern will take on more significance.
• The jobs report does not settle the debate between the bulls and bears in the stock market.  Here are the details:
  • Non-farm private payrolls came at 149K vs. 210K consensus.  The bulls like this much weaker number.
  • Headline non-farm payrolls came at 209K vs. 230K consensus.  The whisper numbers had moved to 275K – 300K after a strong ADP report that came at 497K.  Bulls like today’s weaker number.
  • Unemployment rate came at 3.6% vs. 3.6% consensus.  The Fed is on the record that they want to see the unemployment rate go to about 4.5%.  The bears like today’s number.
  • Average hourly earnings came at 0.4% vs. 0.3% consensus.  The bears like this number.
  • Average work week came at 34.4 vs. 34.3 consensus.  Neither bulls nor bears like this number.
• In the Afternoon Capsule, we shared with you:

The probability of an interest rate hike in September is now 27.7% vs. 18.1% prior.  Additionally, the probability of an interest rate hike in November is now 48.1% vs. 35.9% prior.

• After the jobs report, all probabilities of rate hikes have fallen.
• Looking ahead, CPI will be released on July 12 and PPI will be released on July 13.  Most institutional investors are likely to wait for these numbers before making any significant moves.
• Today is Friday. Keep in mind that short squeezes tend to occur on Fridays.  If a short squeeze starts, it will not only move up the stock market, it will also start a buying frenzy in the momo crowd to buy 0DTE call options, driving the stock market even higher.  If a short squeeze does not start, expect the stock market to go lower.
• 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 🔒 (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 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 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 $1922, silver futures are at $22.93, and oil futures are at $71.81.

S&P 500 futures are trading at 4436 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 97 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.

AI Driven Disconnect Widens

Please click here for a chart of 7-10 Year Treasury Bond ETF IEF.

Note the following:

• The chart shows that the bond ETF has fallen to the support zone.
  • Bonds move inverse to the yield.
  • The reason IEF has moved down is because yields have risen.
• This is an important chart because stocks compete with bonds.  10 year Treasury bond yield is the reference benchmark to compare with stocks.
• In yesterday’s Afternoon Capsule, we shared with you that FOMC minutes were hawkish.  Please read yesterday’s Afternoon Capsule for details.
• ADP is the largest private payroll processor in the country.  ADP uses its data to give a glimpse of the employment picture ahead of the official jobs report that will be released on Friday at 8:30am ET.
  • ADP came at 497K vs. 245K consensus.
  • ADP data is a blowout number, indicating a very strong jobs picture.
• Weekly jobless claims came at 248K vs. 250K consensus.  This is a leading indicator and carries heavy weight in the proven adaptive ZYX Asset Allocation Model with inputs in ten categories.  ZYX Asset Allocation Model has a long track record of calling both bull and bear markets correctly better than any other model. The secret is that this model automatically changes itself with market conditions.  Most models on Wall Street are static — they work for a while and then stop working when market conditions change.
• When the AI frenzy started, it disconnected the magnificent seven stocks from interest rates. The magnificent seven are  Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA). The popular Nasdaq 100 ETF (QQQ) has risen mostly due to the rise in the magnificent seven stocks.
• The disconnect between rising interest rates shown on the chart and the magnificent seven continues to widen.
• Take a look at the chart when IEF was in the support zone the last time and then see where the magnificent seven stocks were at that time.  The magnificent seven stocks were significantly lower at that time.
• In The Arora Report analysis, such a wide disconnect is not sustainable.  Here is the key question for investors: Will interest rates fall or will the magnificent seven pull back and in the process cause a pullback in S&P 500 (SPX)? 
• There is more market moving data ahead in addition to the jobs report tomorrow.
  • ISM Non-manufacturing Index will be released at 10:00am ET today.  The consensus is 51.1.
  • JOLTS job opening report will also be released at 10:00am ET today.
• 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 🔒 stocks in the early trade.  Smart money is 🔒 stocks in the early trade.

Gold

Gold is pulling back on rising yields.

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 pulling back on recession fears.

API crude oil inventories came at a draw of 4.382M barrels vs. a consensus of a draw of 1.8M barrels.

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is seeing buying as BlackRock (BLK) pushes for approval of 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 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 $1913, silver futures are at $23.00, and oil futures are at $71.65.

S&P 500 futures are trading at 4447 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 276 points.

Very Positive Positioning

Please click here for a chart of semiconductor ETF SMH.

Note the following:

• The chart is a weekly chart to give you a longer term perspective.
• Semiconductors are the leading sector as we have previously written.  Semiconductors have also been a prime beneficiary of the artificial intelligence (AI) frenzy.  For the direction of the stock market, investors should pay attention to the semiconductor sector in addition to the group of magnificent seven stocks Apple (AAPL), Amazon (AMZN), Google (GOOG, GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
• The chart shows the move up in semiconductors when Nvidia projected $11B in revenues vs. about $7B consensus.
• The chart shows that semiconductors are consolidating in a range.  Investors should look for a breakout or a breakdown from a consolidation range for the market direction.
• RSI on the chart shows that on a weekly basis semiconductors are overbought.  When a sector is overbought, it is vulnerable to pullbacks.  However, there is a special factor of the AI frenzy.  Due to AI frenzy, pullbacks will likely be shallow and buying opportunities.
• Investors should pay attention to positioning.  Positioning in semiconductors is now extremely positive. Positioning in the overall stock market is now very positive. Positioning is a very important Wall Street mechanic that all investors should strive to develop a deep understanding of as it can give you a big edge.  For those wanting a deep understanding of positioning, listen to the podcast “Market Mechanics: Positioning.”
• The general rule from a long term perspective is to buy new positions, add to positions, and start trade around positions when positioning is very negative to extremely negative and to take profits on tactical positions and initiate short positions when positioning is very positive to extremely positive.
• The news from China is that China is restricting the export of gallium, germanium, and other related materials.  These metals are critical for certain semiconductor, electric vehicle, solar, defense, and automotive applications.
• Between 2018 – 2021, 53% of the gallium used in the U.S. was imported from China.  In 2019, the U.S. increased tariffs on Chinese gallium, reducing imports.  However, these numbers are deceptive in that these materials are often exported from China to other Asian countries such as Taiwan, Japan, South Korea, and Thailand, and then finished products are imported to the U.S.
• Stocks of Chinese gallium and germanium companies are jumping as much as 10%.  In theory, stocks of such companies should go down because they will have more restrictions on exports and lower revenues.  In practice, these companies may be able to smuggle their goods outside China and, in the process, charge higher prices.  
• Among the U.S. semiconductor companies, there may be a negative impact on Skyworks (SWKS), Qorvo (QRVO), and Wolfspeed (WOLF).
• In separate news, Japanese company Renesas (RNECF, RNECY), headquartered in Tokyo, is providing a $2B deposit to Wolfspeed for a 10 year silicon carbide supply agreement.  Silicon carbide power devices are playing an increasing role in electric vehicles and renewable energy.  For this reason, Wolfspeed stock is jumping in spite of the China news.
• Until now, it has been easy for Chinese companies to circumvent U.S. restrictions on the export of advanced Nvidia chips to China.  The U.S. has imposed its restrictions to slow down the development of artificial intelligence in China. Chinese companies have been able to get around these restrictions by simply using the cloud capacity of Microsoft and Amazon.  Now, the U.S. is planning to restrict U.S. cloud companies from providing certain cloud infrastructure to Chinese companies.  This is negative for Microsoft, Amazon, and Nvidia.
• Prudent investors are paying attention that worsening relations between the U.S. and China on technology pose a serious risk not only to the companies named above but pose a more serious risk to companies deriving significant revenue from China such as Apple and Tesla.  The momo crowd is oblivious and continues to aggressively buy Apple and Tesla stocks.
• Secretary of the Treasury Janet Yellen is starting her visit to China in an attempt to thaw relations.
• In The Arora Report analysis, Yellen’s trip to China will likely be showcased as a success by both the U.S. and China.  However, nothing is going to change in the longer term geopolitics as China remains determined to dethrone the U.S. as the number one superpower. 
• As we have written before, July is a seasonally positive month for the stock market.
• As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.

Blind Money

Blind money is the money that pours into Wall Street at the beginning of the month without any analysis.  This month, due to the holiday, blind money will be invested mostly in the afternoon today and tomorrow.

China PMI

The latest PMI numbers from China show that recovery is not taking hold.  Caixin Services PMI came at 53.9 vs. 57.1 prior.  Caixin Manufacturing PMI came 50.5 vs. 50.9 prior.

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

Oil is giving back its gains on the news of output cuts by Saudi Arabia.  In The Arora Report analysis, the reason Saudi production cuts are not succeeding in running up oil is the relationship between Russia and India as well as Russia and China. 

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 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 $1937, silver futures are at $23.43, and oil futures are at $71.71.

S&P 500 futures are trading at 4471  as of this writing.  S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4400, 4318, and 4200.

DJIA futures are down 170 points.