WEEKLY STOCK MARKET DIGEST: BIG BANKS BEAT AS CONSUMERS KEEP MONEY IN LOWER INTEREST ACCOUNTS, CRYPTO JUBILATION ON HARMFUL RULING

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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.’

 

BIG BANKS BEAT AS CONSUMERS KEEP MONEY IN LOWER INTEREST ACCOUNTS, CRYPTO JUBILATION ON HARMFUL RULING

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

Big Banks Beat

Please click here for a chart of JPMorgan (JPM).

Note the following:

  • The chart shows that JPM stock ran up going into earnings.
  • The chart shows that JPM stock is gapping up on the bank easily beating earnings estimates and giving good guidance.
    • As a full disclosure, JPM is in the ZYX Buy Model Portfolio from $34.14.  The stock is trading at $153.15 as of this writing.
  • Two other major banks Wells Fargo (WFC) and Citigroup (C) also beat earnings estimates.  The most striking point of the earnings of all three banks is that consumers continue to keep money in banks earning less than 1% while these banks are giving many loans at over 10%.  The difference between what the banks pay and what they loan at is known as net interest margin.  These banks expect the net interest rate margin to remain high as they are forecasting interest rates will remain high for longer.
    • In contrast to commentary from the banks, the momo crowd believes that the Fed is going to cut interest rates.
  • The largest health insurer in the country United Health (UNH) also slightly beat earnings estimates.
  • In the premarket, money continues to rush into the magnificent seven stocks on AI frenzy.  The magnificent seven stocks are Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
  • Fed Governor Waller said that he is thinking of two more rate hikes over the next four FOMC meetings this year.
  • University of Michigan Consumer Sentiment Index will be released at 10am ET and may move the stock market.  Expectations are for the consumer to be highly confident.
  • Positive sentiment is approaching an extreme. When positive sentiment reaches an extreme, it is a contrary signal.  In plain English, it means sell.  Keep in mind that this is not a precise timing signal.  
    • The five day moving average of put call volume ratio is at the lowest level since the bull market top in December 2021.  This indicates extremely positive sentiment. 

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

There is jubilation in crypto land on a court decision.

The court has ruled that Ripple’s XRP token is a security when sold to institutional and sophisticated investors but it is not a security when sold to an unsophisticated average Joe who does not understand what he is buying.  In plain English, the court is saying that the SEC needs to protect institutions and sophisticated investors from crypto fraud, but an average Joe who does not understand what he is buying needs no protection from the SEC from crypto fraudsters and needs to fend for himself.

Without getting into the legalese, in The Arora Report analysis, this is a harmful decision for average investors.

How did average Joes respond to this nonsensical decision?  They bought XRP tokens, causing an almost 100% surge.  They also bought crypto broker COIN, causing an almost 25% surge in the stock.

Alex Mashinsky, ex-CEO of Celsius and a popular crypto guru with a large following, has been arrested for fraud.

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 $1960, silver futures are at $25.01, and oil futures are at $76.62.

S&P 500 futures are trading at 4550 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 181 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.

See also  PAY ATTENTION: A MAJOR RISK EVENT IS AHEAD – NVIDIA EARNINGS

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.

 

MOMO CROWD STOCK MARKET NIRVANA OF COOLING INFLATION AND NO RECESSION CONTRADICTED BY IMPORT DATA

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

Contradiction

Please click here for a chart of Industrial Select Sector SPDR Fund (XLI).

Note the following:

  • As the momo crowd in the stock market feels the nirvana of cooling inflation, no recession belief, and expanding breadth of the rally, import data strongly contradicts the bullish beliefs.  However, right now, the momo crowd is oblivious and buying stocks.  Prudent investors are paying attention to the import data.
  • The chart shows that industrials have broken out.  Industrials are very sensitive to the economy and get hurt in a recession.
  • The fact that industrials have broken out shows that the predominant belief of stock market investors is that there will be no recession.
  • The data from China directly contradicts the conclusion of stock market bulls in the U.S. that there will be no recession.
    • The U.S. is a major importer of Chinese goods.  In the case of many goods, there are no reasonable alternatives to China.
    • Chinese exports to the U.S. dropped about 24%.  This is the worst number since March 2020.
    • The data from China shows that consumers’ buying of goods in the U.S. is definitely slowing.
  • Producer Price Index (PPI) came cooler than expected.   Here are the details:
    • Headline PPI came at 0.1% vs. 0.2% consensus.
    • Core PPI came at 0.1% vs. 0.2% consensus.
  • Jobless claims came at 237K vs. 247K consensus.  This is a leading indicator and carries heavy weight in the adaptive ZYX Asset Allocation Model with inputs in ten categories.  The model has a great track record in both bull and bear markets.
  • On a bullish note, the rally is expanding beyond the AI frenzy driven rally in the magnificent seven stocks.  The magnificent seven stocks are Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
  • Earnings season has started.  Among the important earnings, earnings from insurance company Progressive (PGR) and construction support company Fastenal (FAST) are worse than expected.  Earnings from airline Delta (DAL) and snack and beverage company Pepsi (PEP) are slightly better than expected.
  • Buyouts are picking up.  Exxon Mobile (XOM) is buying Denbury (DEN).  However, the price offer for Denbury is a disappointment.
  • 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 🔒 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 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 $1958, silver futures are at $24.48, and oil futures are at $75.75.

S&P 500 futures are trading at 4521 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 75 points.

 

INFLATION COOLS BUT STOCK FUTURES MOVE NOWHERE NEAR BULLS’ PREDICTIONS

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

Inflation Cools

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 has moved up on data showing that inflation is cooling.
  • The chart shows that so far in the early trade, the move up is nowhere near what bulls were predicting. As of this writing, S&P 500 futures are up about 25 points.  Bulls were predicting 100 points.
  • Prudent investors will be carefully watching to see if the stock market breaks out of the range it has been consolidating in, as shown on the chart.
  • Here are the details of the CPI data:
    • Headline CPI came at 0.2% month-over-month vs. 0.3% consensus.
    • Headline CPI came at 3.0% year-over-year vs. 3.1% consensus.
    • Core CPI came at 0.2% month-over-month vs. 0.3% consensus.
    • Core CPI came at 4.8% year-over-year vs. 5.0% consensus.
  • Here are the questions prudent investors are asking:
    • Is this dip in inflation transitory?
    • Will the Fed raise interest rates in July?
    • Will a July hike be the last hike or will the Fed continue to raise rates?
  • In contrast to prudent investors, the momo crowd believes the Fed will cut interest rates.
  • In The Arora Report analysis, unless there is new data showing substantial economic weakness or a bank failure, the probability of the Fed cutting interest rates in the near term is very low. 
  • Bank of Canada will announce its rate decision at 10am ET and will hold a press conference at 11am ET.  Expectations are for a 25 bps rate hike.  In the recent past, the Bank of Canada decision has moved the stock market in the U.S.  If the Bank of Canada does not raise rates, the news may start another leg up in the stock market. 
See also  WEEKLY STOCK MARKET DIGEST: PRUDENT INVESTORS STAY ALERT, AI FRENZY TAKES CONTROL OF THE STOCK MARKET

Momo Crowd And Smart Money In Stocks

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

Gold

Gold is seeing buying on CPI data.

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 oil inventories came at a build of 3.026M barrels vs. a consensus of a build of 0.200M 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 on 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 $1948, silver futures are at $23.82, and oil futures are at $75.35.

S&P 500 futures are trading at 4508 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 238 points.

 

SPECULATIVE FEVER BUILDS – PREDICTIONS OF 100 POINT UP MOVE IN S&P 500 AND BITCOIN OVER $100K

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

Speculative Fever Builds

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 AI frenzy driven rally in the magnificent seven stocks this year is causing a speculative fever to build.  The magnificent seven stocks are Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
  • The chart shows that the stock market is consolidating after the formation of an island that was not well developed.  The consolidation is above the top support / resistance zone shown on the chart.
  • There are predictions of an over 100 point move in S&P 500 tomorrow after the release of the all important CPI data.
  • Momo gurus are laying the groundwork to persuade their followers to buy stocks irrespective of what the real data says tomorrow.
  • The resistance zone shown near the top of the chart is the magnet for traders before the year end.
  • While the speculative fever is building, the Fed speak is decidedly hawkish.
  • Nasdaq is being forced to conduct a special rebalance of Nasdaq 100 before the market open on Monday, July 24.
    • There are only two special rebalances in history – May 2011 and Dec 1998.
    • The reason for the special rebalance is that the magnificent seven stocks are now more than half of the weight of the index.
    • The weight changes are not known at this time.  They will be announced on Friday, July 14.
    • The weight of six out of the seven magnificent stocks is likely to be reduced.  META may not have its weight reduced.
    • This may have a slight negative impact on the magnificent seven stocks.
  • There is optimism in Asia on China’s stimulus.  The optimism from Asia is spilling into the U.S. market in the early trade.

China

In yesterday’s Morning Capsule, we wrote:

In The Arora Report analysis to counter deflation, the Chinese government is likely to provide stimulus.  Investors love stimulus as stimulus creates more money.  A part of the stimulus money rushes into the stock markets.

The call has proven spot on.  China is announcing stimulative measures to support the property sector.

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

A well known analyst from a large reputable bank is predicting that bitcoin will reach $50K by the end of 2023 and will be above $100K by the end of 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 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 $1936, silver futures are at $23.25, and oil futures are at $73.28.

S&P 500 futures are trading at 4455  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 up 116 points.

 

INVESTORS WAITING FOR CPI BUT CHINA’S PRODUCER DEFLATION MAY BE MORE CONSEQUENTIAL

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

China’s Producer Deflation

Please click here for a chart of China ETF ASHR.

See also  WEEKLY STOCK MARKET DIGEST: PRUDENT INVESTORS PAY ATTENTION TO NEW ECONOMIC DATA

Note the following:

  • The chart shows that unlike the U.S., the Chinese market has not staged a significant rally this year.  China is important because it is the second largest economy in the world.
  • The stock market rally in the U.S. is driven by the AI frenzy that has caused money to flow into seven magnificent stocks.  The magnificent seven stocks are Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
  • China is the biggest competitor to the U.S. in artificial intelligence.
  • The chart shows that the AI rally in Chinese stocks has fizzled.
  • China is close to deflation.  Consumer Price Index (CPI) in China is important for the Chinese domestic economy, but Producer Price Index (PPI) in China is important for the rest of the world, including the U.S. For this reason, investors should pay attention to PPI in China.  Here is the data:
    • China’s CPI came at 0.0% year-over-year vs. 0.2% consensus.
    • PPI in China came at -5.4% year-over-year vs. -5% consensus.
    • PPI in China has now fallen for nine consecutive months.
  • China is the factory to the world.  As producer prices in China fall, prices of exports from China also fall.  This is helping  goods inflation in the U.S. and making overall inflation numbers look good.
  • As we have written before, in The Arora Report analysis, it is the core services inflation ex-housing that is important for investors.  This includes items such as cost of travel, restaurants, and haircuts.  The Fed is also focused on core services inflation.
  • In The Arora Report analysis to counter deflation, the Chinese government is likely to provide stimulus.  Investors love stimulus as stimulus creates more money.  A part of the stimulus money rushes into the stock markets. 
  • In The Arora Report analysis, investors should not get too optimistic about stimulus in China because the Chinese government is likely to exercise restraint due to massive debt issues at the local government level.  
  • All eyes are on CPI that will be released on Wednesday, July 12 at 8:30am ET.
    • The consensus for both headline and core CPI is 0.3%.
    • Whisper numbers are 0.2% for headline CPI, and that is the reason momo gurus are using to prompt buying of stocks ahead of CPI release.  As is their pattern, the momo crowd is buying ahead of key data on hope strategy.  In contrast, smart money takes risk control measures ahead of key data.  Our decades of experience show that in the long term, hope is not a good investing strategy.  
  • Taiwan Semiconductor (TSM) is the world’s largest contract semiconductor manufacturer.  TSM manufactures chips for the likes of Apple, Nvidia, and AMD (AMD). TSM reported June 2023 revenues declined 11.1% year-over-year.
  • Negative data from TSM comes on the heels of negative semiconductor production data from Samsung (SSNLF).
  • Prudent investors need to make  note of the semiconductor production data from TSM and Samsung since semiconductors have been the leading sector in this year’s stock market rally.  Investors have been running up semiconductor stocks on the AI frenzy and also on the assumption that the order downdraft has bottomed.
  • 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 🔒 in the early trade.

Gold

Gold is seeing selling on China inflation data. 

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 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 $1920, silver futures are at $22.98, and oil futures are at $73.32.

S&P 500 futures are trading at 4433  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 up 10 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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