WEEKLY STOCK MARKET DIGEST: INVESTORS ARE BUYING STOCKS ON HOPE STRATEGY, SHOULD YOU BUY?

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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.’

MOMO GURUS WRONG AGAIN ON JOBS BUT PERSIST IN THE SAME BEHAVIOR

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

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:

  • As we previously shared with you, the momo crowd was aggressively buying stocks ahead of the jobs report hoping for job destruction. We also shared with you that bond traders were making the opposite bet and projecting a better jobs report.

THIS CLASSIC MISTAKE WILL COST YOU DEARLY – HERE IS HOW TO AVOID THE PITFALL

  • The jobs report is better than expected. Here are the details.
    • Nonfarm Private Payrolls came at 381K vs. 275K consensus.
    • Nonfarm Payrolls came at  372K vs 250K consensus.
    • The unemployment rate came at 3.6% vs.  3.6% consensus.
    • Average hourly earnings came at 0.3% vs. 0.3% consensus.
    • Average work week came at 34.5 vs. 34.6 consensus.
  • The chart shows that the market has moved up above the support/resistance zone.
  • The chart shows the rally has been on low volume.  This is a negative.
  • The chart shows that RSI is rolling over without reaching an overbought level. This is a negative.
  • There is nothing in this report that will deter the Fed from a 75 basis point rate hike.
  • Now that momo gurus’ narrative of the last few days has proven to be wrong, expect them to come up with a new narrative to persuade investors to buy stocks and expect the momo crowd to follow.
  • Important economic data such as CPI is ahead.
  • Earnings season starts next week.  In our analysis at The Arora Report, analysts’ estimates are too high.

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 🔒 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 has staged a big rally on the belief that whales will be successful in holding the recent lows.

 

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 $1736, silver futures are at $19.07, and oil futures are $103.45.

S&P 500 futures resistance levels are 3950, 4000, and 4200: support levels are 3860, 3770, and 3630.  3884

 futures are down 58 points.

 

Protection Bands and What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold 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.

See also  WEEKLY STOCK MARKET DIGEST: GAME PLAN – FUNDS BUYING STOCKS ON NO CHOICE BUT TO HOLD THE NOSE AND BUY

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.

 

BE CAREFUL – HALF-TRUTHS ABOUT KING DOLLAR PROPELLING SOME STOCK BUYING

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

Half-Truths

Please click here for a chart of US Dollar Index (USDX).

Note the following:

  • The chart shows that the dollar index has broken out.
  • The impact of the dollar breakout is multifaceted.  Many gurus are using half-truths about the dollar breakout to persuade investors to buy stocks.  Keep in mind that their job is not your best interest, but to persuade investors to buy stocks.
  • Here is the narrative full of half truths that is taking hold.
    • The dollar breakout is deflationary.
    • Deflationary pressures from dollar breakout will cause the Fed to slow down rate increases and potentially even start cutting rates later this year.
    • When the Fed slows down rate increases, the stock market will stage a big rally.
    • Since this narrative is taking hold and the momo crowd does not do any deep analysis, a big stock market rally on this narrative will not be a surprise.
  • The narrative about the dollar breakout is highly flawed for many reasons.  Here are the key ones:
    • The dollar is not breaking out for a good reason such as the US economy strengthening or a surplus in the US budget or the US exporting more than importing or the US national debt is decreasing or the divisions in the US population are lessening.
    • The dollar is going up only because of interest rate differentials between the dollar and euro and also between the dollar and yen.
    • In the dollar index, the euro has 57.6% weight, Japanese yen has 13.6% weight, and pound sterling has 11.9% weight.
    • The European Central Bank (ECB) is in a very difficult position.  On one hand, inflation is surging and on the other hand, the economy is about to go into a recession because of heavy dependence on energy from Russia.
    • The Bank of Japan (BOJ) is still printing money.
  • If the Fed slows interest rate increases, the dollar will likely fall.  
  • About 30% of earnings of S&P 500 companies are from overseas.  The overseas earnings are worth less when translated to the dollar due to the strength in the dollar.
  • In our analysis at The Arora Report, so far the impact of a strong dollar on earnings is about 2% reduction.
  • Lower earnings are likely ahead.  Market bulls are not prepared for lower earnings.
  • Earnings season will start next week.  Prudent investors will want to see the actual data before turning bullish.
  • The dollar has a major impact, not only on the stock market but also on commodities such as gold, silver, oil, and copper, and in turn on stocks of companies that produce or use commodities.  If you are interested in an in-depth podcast on the move in the dollar, please write to ambassador@thearorareport.com.

Semiconductors

Semiconductors are a leading sector in the stock market.  Samsung Electronics of South Korea is one of the major semiconductor producers in the world.  Samsung is guiding both sales and profits higher.  This is creating positive sentiment in semiconductors and in turn tech stocks.

See also  CHINESE JETS FLY CLOSE TO TAIWAN – BE CAREFUL ABOUT THE TAIL RISK

UK

UK Prime Minister Boris Johnson has resigned.  Pound sterling and stocks in London are moving higher on the news.

China

China is embarking on letting local governments sell bonds worth $220B primarily for infrastructure projects.  This should help Chinese stocks.

Jobless Claims

Initial claims came at 235K vs. 234K consensus.

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 🔒 gold in the early trade.

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

Oil

After dipping below $100, oil is attempting a rally.

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 holding above $20,000.

Markets

Our very, very short-term early stock market indicator is 🔒 but expect the market to 🔒.  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 slightly 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 $1739, silver futures are at $19.26, and oil futures are $99.64.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3770, 3630 and 3600.

 futures are up 196 points.

 

INVESTORS’ BET AGAINST THE ECONOMY TO FACE OFF AGAINST NEW DATA

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

Bet Against The Economy

Please click here for a chart of the S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

  • Over the last two trading days, investors have been aggressively betting against the economy.   How are they betting against the economy? They are betting against the economy by aggressively buying stocks, especially highly speculative momo stocks.
  • The narrative that has taken hold is that the economy is heading towards a deep recession and this will force the Fed to stop its fight against inflation.  There is even a more optimistic scenario taking hold – inflation has peaked and the economy is going to get worse – the Fed will start cutting rates and printing money again running up the stock market.
  •  The bet against the economy is about to face off against new data.
    • ISM Non-Manufacturing Index will be released at 10:00 am ET.  The consensus is 54.2%.
    • FOMC minutes will be released at 2:00 pm ET.
    • The jobs report will be released at 8:30 am ET on Friday.
  • The chart shows that the up move on Friday was followed by more buying yesterday.
    • A massive short squeeze has occurred in bonds leading the yields to fall.  A short squeeze in bonds means bonds go higher and yields fall.  As a practical pointer, inverse bond ETFs such as  and  fall when bonds rise.  The yield on the benchmark 10-yr Treasury has fallen from a recent high of 3.5% to about 2.8%.  This is a highly unusual move – moves of this magnitude in bonds are not common.
    • The up move in bonds has triggered an up move in stocks.
  • The chart shows that in spite of the strong rallies, the market is still within the support/resistance zone.
  • Prudent investors need to make note of the following:
    • There was blind money buying on Friday and yesterday.  Blind money is the money that flows into Wall Street at the beginning of the month without any analysis and irrespective of market conditions.  Normally, blind money gets invested during the afternoons of the first two days of the month.  This time due to the holiday, some of the blind money is likely still not invested and will support the market today.
    • A big part of the up move, especially in  stocks and aggressive momo stocks has been due to a short squeeze.
  • As an actionable item, there is no change to the protection bands until the market reaction to the new data is known.
See also  ECB RAISES INTEREST RATES BY 50 BASIS POINTS FOR THE FIRST TIME IN 11 YEARS – MOMO BUYS STOCKS

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 dollar has broken out. Gold is priced in dollars.  Due to the dollar breakout, gold has fallen.

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

Yesterday early morning, oil was running higher but as the narrative of betting against the economy took hold, oil lost over 8% in one day.  The reason is that if the economy is going to experience a deep recession, the demand for oil will fall.

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

For longer-term, please see oil ratings.

Bitcoin

Whales are pumping in enormous amounts of money into bitcoin and other cryptos as well as crypto-related companies.  As more and more crypto-related companies have filed for bankruptcies, bitcoin would have fallen to $13,000 – $16,000 range if it was not for the whales pumping money.   Whales simply cannot afford for bitcoin to fall any further.

The latest to file for bankruptcy is Voyager Digital (VYGVF).

Markets

Our very, very short-term early stock market indicator is 🔒 as the market may move based on the ISM Index and FOMC minutes.  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 $1763, silver futures are at $19.22, and oil futures are $99.6.

S&P 500 futures resistance levels are 3860, 3950 and 4000: support levels are 3770, 3630 and 3600.

 futures are down 15 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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