WEEKLY STOCK MARKET DIGEST: GOOD RETAIL SALES – MOMO CROWD DISSONANCE ON DISPLAY IN THE STOCK MARKET

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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.’

GOOD RETAIL SALES – MOMO CROWD DISSONANCE ON DISPLAY IN THE STOCK MARKET

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

Retail Sales

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 US economy is about 70% consumer based.  For this reason, prudent investors pay attention to retail sales.
  • Retail sales were better than expected.  Here are the details:
    • Retail sales came at 1.0% vs. 0.8% consensus.
    • Retail sales ex-auto came at 1.0% vs. 0.6% consensus.
  • Early this morning before the release of the retail sales, the momo crowd was aggressively buying stocks because they believed the bottom is in, and they were hoping for bad retail sales.  Their narrative was that bad retail sales would make it difficult for the Fed to continue on its present course.
  • When the retail sales turned out to be better than expected, there was a quick down spike because of selling, but the momo crowd bought the dip, becoming even more aggressive in buying.
  • The dissonance in the momo crowd is on full display – they want to buy irrespective of the data.
  • There is a very interesting data point from Wells Fargo (WFC) earnings.  WFC has significant exposure to consumers
    • The consumer is strong but is losing ground fast.
    • Consumer borrowing is increasing to keep up with inflation.
    • The bank is increasing its second quarter loan loss provision for credit losses of $580M vs. consensus of $414M .

Biden Visit

There is a report that there will be no announcement of increased oil production in Saudi Arabia.  If true, this will be disappointing to the oil market and hurt Biden politically.

China

China GDP contracted 2.6% quarter over quarter vs. consensus of contraction of 1.5%.

Keep in mind the norm for China is strong growth and not contraction.  The contraction is due to COVID policies.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial)  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

Oil is running up on a journalist’s report of no oil announcement by Biden in Saudi Arabia.

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 being bought along with other risk assets and is over $21,000 as of this writing.

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 $1705, silver futures are at $18.50, and oil futures are $98.94.

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

DJIA futures are up 383 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.

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.

 

HOT PPI – STEEPEST YIELD CURVE SINCE 2000 – BANKS DISAPPOINT

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

Hot 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:

  • Producer Price Index released this morning is hot.  Here are the details:
    • Headline PPI came at 1.1% vs. 0.9% consensus.
    • Prior headline PPI was revised to 0.9% from 0.8%.
    • Core PPI came at 0.4% vs. 0.5% consensus.
    • Prior Core PPI was revised to 0.6% from 0.5%.
  • After CPI came worse than expected yesterday and momo gurus were proven wrong about their call on CPI, momo gurus started urging their followers to buy stocks on the hope that PPI would be much better than the consensus. Momo gurus are wrong again.  Let us see what narrative they come up with now to urge their followers to buy stocks.
  • In our analysis at The Arora Report, PPI may have temporarily peaked, and the numbers to be released in August for July are likely to be better.  The reason is that prices of oil and other commodities have come down.
  • 10-year minus 2-year Treasuries yield curve is the steepest since 2000.  This increases the probability of a recession.
  • The Arora Report’s call is that the probability of a recession in the US is 80%, and the probability of recession in Europe is 90%.
  • The two major bank earnings this morning are disappointing.
    • JP Morgan (JPM) profits fell 28%.  JPM is setting aside $428M to cover potential future loan losses.  JPM earnings are below consensus and below whisper numbers.
    • Morgan Stanley (MS) earnings fell 29%.  Earnings are below consensus and whisper numbers.
  • On the positive side, earnings from Taiwan Semiconductor (TSM) were better than the consensus and whisper numbers.  Taiwan Semiconductor is the largest semiconductor manufacturer in the world and manufactures chips for the likes of Apple (AAPL).
    • Semiconductors are often the leaders, especially at market turning points.  Good earnings from TSM are bringing in buying in semiconductors in the early trade.
  • Consumer discretionary company Conagra (CAG) reported earnings slightly better than the consensus but is guiding below consensus.
  • Today is the first day of important earnings.  Often, the first day sets the tone for the earnings season. This is the reason earnings are being highlighted in the Morning Capsule.
  • Rents in the US are rising at the fastest pace since 1986.
  • The chart shows that in spite of very difficult CPI numbers, the market did not fall below the low band of the support/resistance zone and strongly rallied from the lows.
    • The market was supported by momo buying based on momo gurus’ calls.  We shared with you in yesterday’s Afternoon Capsule:

The reason is that some momo gurus are predicting that today is the stock market bottom, while others are predicting that tomorrow will be the stock market bottom.

  • The charts show that in the early trade after the release of PPI numbers and bank earnings, the market has dipped slightly below the low band of the support/resistance zone.
See also  EXCELLENT JOBS REPORT – MOMO NARRATIVE PROVEN WRONG

Jobless Claims

Initial claims came at 244K vs. 239K consensus.

India

India’s June WPI Inflation came at 15.18% year over year vs. consensus of 15.50%. In our analysis at The Arora Report, inflation in India is likely to moderate and provide a buying opportunity for long term investors.  India is covered in ZYX Emerging.

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 has now broken another support.  As a full disclosure, ZYX Short has a short position in oil.  The position is now nicely profitable.

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is seeing slight selling.

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 $1707, silver futures are at $18.36, and oil futures are $94.92.

S&P 500 futures resistance levels are 3770, 3860 and 3950: support levels are 3630, 3600 and 3520.

DJIA futures are down 502 points.

 

HOTTER CPI – MOMO CROWD USING HOPE STRATEGY GETS BURNED AGAIN

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

Hotter 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:

  • Consumer Price Index (CPI) came hotter than expected.
    • Headline CPI came at 1.3% vs. 1.1% consensus.
    • Core CPI came at 0.7% vs. 0.6% consensus.
  • The chart shows that S&P 500 was at the upper band of the support/resistance zone prior to the release of the numbers and is now at the low band of the zone.  This wide range is due to the momo crowd’s behavior.
  • The momo crowd’s behavior this time is the exact replica of what they were doing last month, and many months before, prior to release of the CPI number.  Every single time momo gurus’ hope strategy has been wrong and the momo crowd has been burned, yet they persist in using the hope strategy.
  • The momo crowd was buying aggressively going into the release of the number, including this morning, on the hope that inflation had peaked and the CPI numbers would be less than the consensus.
  • Of special note is that a few seconds before the release of the numbers, there was huge, aggressive buying in stock futures taking out stops of short sellers.  Short sellers have proven to be right that the CPI numbers would be worse than the consensus, yet they lost money because their stops were taken out only a few seconds before the release. 
    • This illustrates the beauty of The Arora Report Trade Management Guidelines of staggering stops in stop zones instead of stops at just one point.
    • This also illustrates the beauty of the ZYX Change Method of not putting stops at an obvious place where they get hunted.
  • RSI on the chart shows that the market can potentially go lower.
  • After the stock market lost its morning gains and fell as much as 400 DJIA points, the momo crowd has become very aggressive in buying again.
  • Since oil has fallen in July and gas prices are coming down, expect inflation numbers for July to moderate.  Expect momo gurus to latch onto the simple fact, and urge their followers to aggressively buy stocks.
  • Beige Book will be released at 2pm.
  • Expect momo gurus to twist the Beige Book in coming up with more reasons to buy stocks.
  • Tomorrow morning important earnings will be released from banks JPM and MS, semiconductor manufacturer TSM, and consumer staple company CAG.
  • This first set of earnings in the earnings season are important because they tend to set the direction.
    • More important than earnings will be what the companies say about the guidance for the next quarter.
  • The probability of a 75 basis point hike in September has doubled to 78% after the CPI numbers this morning.  
  • The probability of a 75 basis point hike later this month is now 95%.
See also  CHINESE JETS FLY CLOSE TO TAIWAN – BE CAREFUL ABOUT THE TAIL RISK

Momo Crowd And Smart Money In Stocks

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

Gold

In gold, there is a push pull between inflation and higher interest rates.  Inflation is good for gold, but higher interest rates are bad for 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 coming under pressure but still holding above $19,000.  Higher interest rates are not good for bitcoin.

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 $1717, silver futures are at $18.86, and oil futures are $96.16.

S&P 500 futures resistance levels are 3860, 3950, and 4000: support levels are 3630, 3600, and 3520.

DJIA futures are down 320 points.

 

EURO PARITY WATCH – RECESSION PROBABILITY INCREASES TO 80%

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

Editor’s note: Charts will soon return to big charts with a magnifying glass and more detail.

Euro Parity

Please see the chart of euro futures (EUR_F).

Note the following:

  • The chart shows a swift drop in euro against the dollar.
  • The market is on a euro parity watch.
  • Investors need to grasp the following implications of the major currency move.
    • This development is inflationary in Europe.
    • This development is deflationary in the United States.  
    • This development increases the probability of a recession in Europe to 90%.
    • This development increases the probability of a recession in the US to 80%.
    • About 30% of S&P 500 earnings come from abroad.
    • This development will cause earnings to take a hit.
    • Commodities are priced in dollars.  As the dollar gets stronger, commodity prices are getting hit.  This includes gold and oil.
  • Biden is heading to Saudi Arabia.  The White House is emphasizing that the trip is about security and not about oil.  However, the market is assuming that the purpose of the visit is to increase oil production.
    • The problem is that the Saudi’s do not have significant room to increase oil production.
    • UAE can increase oil production by a significant amount.
    • What happens during Biden’s visit will have a major impact on all markets.
  • The key is the CPI numbers tomorrow.
    • If the numbers are weaker than expectations and there are no other major developments, expect a rip roaring stock market rally.
    • If the numbers are worse than expected and there are no other major developments, expect a stock market selloff.

Yield Inversion

The yield differential between 10-year Treasuries and 2-year Treasuries has inverted by 10 basis points. This is a major reason for the recession probability to go up in the US.  To see all categories of inputs that go into the adaptive ZYX Allocation Model, please click here.

See also  STOCK BUYING ON INTEREST RATE HIKE BETS REVERTING

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 🔒 in the early trade.  Smart money is 🔒 in the early trade.

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

Oil

WTI oil has broken below the psychological support of $100 as of this writing.

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 broken below the psychological support of $20,000.  Whales continue to buy bitcoin when it breaks down because they cannot afford for bitcoin to go much lower

Markets

Our very, very short-term early stock market indicator is 🔒, but if there is no counter selling to the momo crowd buying on hope strategy before the release of CPI, the indicator will turn positive.  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 $1730, silver futures are at $18.84, and oil futures are $99.63.

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

DJIA futures are up/down 179 points.

 

DOLLAR RISES – INVESTORS WAKE UP TO THE IMPACT ON EARNINGS

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

Dollar Rises

Please see the chart of dollar index (USDX).

Note the following:

  • The chart shows the dollar is rising this morning.

  • We have previously shared with you that about 30% of S&P 500 earnings come from abroad.  When these earnings are translated into dollars, the net result will be lower earnings.

  • Earnings season starts this week.

  • Investors are finally waking up to the impact of the rising dollar on earnings. This is the cause of selling in stocks in the early trade.

  • The most important number is the CPI that will be released on Wednesday.

  • The sentiment is also being dampened on two developments in China.

    • Casinos in Macau are being closed again due to COVID,

    • The first case of the BA.5 sub-variant has been found in Shanghai.  There is fear of another lock down in Shanghai.

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 🔒 in 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

In a survey, 60% of respondents think bitcoin will fall to $10,000 before going to $30,000.  This is causing negative sentiment in bitcoin.

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 $1734, silver futures are at $19.14, and oil futures are $102.95.

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

DJIA futures are down 191 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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