WEEKLY STOCK MARKET DIGEST: TAKE PARTIAL PROFITS ON TACTICAL POSITIONS – DARK ADVERTISING PICTURE – EUROZONE BUSINESS ACTIVITY FALLS

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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.’

 

TAKE PARTIAL PROFITS ON TACTICAL POSITIONS – DARK ADVERTISING PICTURE – EUROZONE BUSINESS ACTIVITY FALLS

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

Take Partial Profits

For those who have been taking new tactical long positions and have profits on such positions, consider taking partial profits.  Based on personal preference, consider moving stops up in a zone around break even on the rest.

Consider slowing down and becoming very selective with new long or short tactical positions.

Dark Ad Picture

Please click here for a chart of Snap stock (SNAP).

Note the following:

  • The capsules are about the big picture and not about individual stocks.  The chart of SNAP stock is being used to illustrate several important points.
  • The chart shows that the momo crowd was aggressively buying SNAP stock going to the earnings release.
  • Earnings of a company is a risk event.  After regulation FD, it is very difficult to know with high confidence what the earnings will be from an individual company. The only exception is illegal information, for which the penalty is jail.  For this reason, smart money tends to not buy before earnings unless they have special insight.  At The Arora Report, we follow the same principle – we buy before earnings only if we have special insight.
  • Smart money is more concerned about the risk than the reward.  At The Arora Report, our guiding principle is precedence to return of capital over return on capital.
  • The momo crowd almost always buys before earnings because they use the hope strategy.  They are always hoping for good earnings and the stock running up.
  • What did the momo crowd know about SNAP earnings that made them buy the stock aggressively? The momo crowd has been buying stocks on the hope that a slowing economy will stop the Fed from fighting inflation.  If the economy is slowing, it is bound to hit a stock like SNAP that is heavily dependent on advertising.  Advertising always slows down when the economy slows – there have been no exceptions to this.  Of course, figuring all of this out would have taken some analysis and inference, which the momo crowd does not do.
  • The chart shows a significant drop in SNAP stock after release of earnings.  SNAP is painting a dark picture for advertising.
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • The VUD indicator has been mostly orange since the release of earnings, indicating net supply even though the stock has fallen substantially.
  • This morning, Twitter (TWTR) is also painting a dark picture for advertising.
  • Earnings from Meta (META) and Alphabet (GOOG, GOOGL) are ahead.  These two are larger companies and will provide good insight about the economy. Their stocks are trading lower in sympathy with SNAP and TWTR.
  • Seagate Technology (STX), a major disk drive manufacturer, reported disappointing earnings on falling PC sales.
  • Yesterday, we shared with you AT&T (T) said that customers were having difficulty paying their phone bills.  Today, Verizon (VZ) is effectively confirming.  Interestingly, the momo crowd is still buying aggressively AAPL and other stocks that should have fallen in sympathy with T, VZ, and STX.
  • On the positive side, American Express (AXP) reported excellent earnings.  This is due to rebounding business travel.  The up move in AXP stock on earnings is also moving DJIA futures higher

Europe Call Likely To Prove Spot On

We have previously shared with you our call that there was a 90% probability of a recession in Europe.  Based on the new data released this morning, our call is likely to prove spot on.

The data shows that Eurozone business activity fell to a 17 month low.  The Composite PMI came at 49.4 vs. consensus of 51.  A PMI number of less than 50 indicates contraction.  This is a leading indicator.

The report caused the euro to fall and also caused yields on German bonds to fall.

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 being bought on positive risk sentiment.

Markets

Our very, very short-term early stock market indicator is 🔒, but expect DJIA to open higher on AXP earnings.  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 $1723, silver futures are at $18.70, and oil futures are $95.29.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 3950, 3860 and 3770.

DJIA futures are up 133 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  HOTTER CPI – MOMO CROWD USING HOPE STRATEGY GETS BURNED AGAIN

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.

 

ECB RAISES INTEREST RATES BY 50 BASIS POINTS FOR THE FIRST TIME IN 11 YEARS – MOMO BUYS STOCKS

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

European Central Bank

Please click here for a chart of Euro Area Central Bank Balance Sheet.

Note the following:

  • European Central Bank (ECB) has raised interest rates by 50 basis points.
  • Not long ago, ECB was talking about raising interest rates by 25 basis points.  However, in recent days, ECB raised expectations of a 50 basis point increase.
  • Most investors are familiar with money printing in the US, but many US based investors do not pay attention to the expansion of the Central Bank balance sheet in Europe.
  • The chart shows a dramatic expansion of the balance sheet in Europe.  In plain English, there has been a very high level of money printing in Europe.
  • ECB is saying that they will further normalize interest rates.  In plain English, this means that they will raise interest rates further.
  • With the exception of the brief pandemic dip, the large gains in the stock markets across the globe have been driven by easy money since 2009.
  • All investors should differentiate between strategic and tactical.  Please see the Afternoon Capsule for more details.
    • The strategic message is clear – easy money that drove the stock markets across the globe relentlessly higher is mostly over.  
    • Out of the three major central banks in the world, now ECB is joining the Fed.  Bank of Japan is still insisting on easy money.
    • The reason Bank of Japan is still insisting on easy money is that they are afraid of the yen skyrocketing if they abandon the easy money policy.
    • The momo crowd has grown to control the stock market due to the easy money policies of the central banks.  As easy money policies disappear, the momo crowd will have less control over the stock markets.  For this reason, investors should be careful before adopting the momo crowd’s hope strategy and following momo gurus.
  • On a tactical level, there is a lot of bad news this morning, but the momo crowd is buying aggressively in the face of the bad news.  The momo crowd is buying not because the economy is better or because geopolitics are better or central bank policies are better or company fundamentals are better or valuations are attractive.  They are buying because their gurus have told them that the bottom is in and they expect a  shaped recovery in the stock market, just like it occurred several times over the last decade.
    • The difference this time is that both the Fed and ECB are tightening, whereas over the last decade they were easing.

Japan

Bank of Japan left its interest rates unchanged.

China

Chinese credit markets are facing more debt delays.  All investors should pay attention because the situation has the potential to get out of control.  If the situation gets out of control, it will cause significant drops in stock markets across the world.  

Italy

Mario Draghi has resigned.  The yields on Italian bonds are rising.  Italian 10 year debt is now trading 250 basis points over German 10 year debt.  All investors should carefully watch the situation in Italy. 

Germany

Gas is now flowing in Nord Stream 1 at 40% of the capacity.  It is not clear what strategy Putin is using to allow the gas to flow at this time.  Natural gas futures in Europe are dropping.

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 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

Tesla (TSLA) has sold a majority of its bitcoins.  This is dampening the 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 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 $1701, silver futures are at $18.46, and oil futures are $96.08.

S&P 500 futures resistance levels are 4000, 4200 and 4318: support levels are 3950, 3860 and 3770.

DJIA futures are down 138 points.

 

ANOTHER RALLY LEG ATTEMPT HAMPERED BY GAS RATIONING PLAN IN EUROPE

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

Gas Rationing

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

See also  GOOD NEWS ON INFLATION, BUT FED MAY NOT BUCKLE

Note the following:

  • The chart shows a very strong rally yesterday. The second leg of the rally was triggered by the news that Putin would allow gas to flow to Germany through Nord Stream 1 pipeline.  Please read yesterday’s Afternoon Capsule for details.
  • After yesterday’s rally, momo gurus were boasting their prowess to have perfectly called ‘the bottom’ and according to them, the market was now going to go much higher.
  • The momo crowd followed their gurus and aggressively bought after hours and early this morning.
  • Just before 6:00 am ET this morning, the news of the EU proposing a voluntary 15% gas cut in all countries in the European Union started spreading.  In the event of an emergency, the 15% gas cut would become mandatory.
  • Momo crowd bought the tiny dip because of the news.
  • Smart money started selling around 6:18 am when the news emerged that EU officials see Russia cutting off the full gas supply as a likely scenario to weaken the support for Ukraine.  A selloff ensued.  The momo crowd continues to buy the dip as of this writing.
  • The chart shows that this is the third attempt to break above the top band of the support/resistance zone.   The first two attempts failed.
    • Many traditional technical analysts are issuing buy signals now because the third time is often the charm.
    • Many traditional technical analysts are also seeing an inverse head and shoulders pattern forming.  An inverse head and shoulders pattern is a positive pattern. In our observations at The Arora Report, an inverse head and shoulders pattern is successful about 60 – 70% of the time.
    • All patterns are not created equal.  In our analysis, so far the pattern that analysts are seeing is not a well-formed pattern.

ECB

ECB will be making its rate decision tomorrow morning.  Please see a prior capsule for the details.  This may be a significant market-moving event.

Depending upon what ECB does, protection bands may change.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money sold as described above but is 🔒 as of this writing 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 🔒 in oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is seeing strong buying as ‘risk-on’ is the prevailing sentiment among investors.

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 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 $1708, silver futures are at $18.92, and oil futures are $99.11.

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

DJIA futures are down 52 points.

 

ECB RUMOR DRIVING STOCK MARKET HIGHER

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

ECB Rumor

Please click here for a chart of IBM (IBM).

Note the following:

  • There is a rumor that the European Central Bank (ECB) is considering raising its key interest rate by 50 basis points.  Previously, ECB had indicated that it would raise the interest rate by 25 basis points.
  • If the rumor is true, it will end negative interest rates in Europe.
  • The euro is running up on the rumor.
  • The yield on European bonds is rising.
  • The rumor is causing significant buying in US stocks.  You may be wondering way the rumors of higher than expected rate hike in Europe would cause US stocks to rise.  The answer is that S&P 500 companies derive about 30% of their revenues from abroad.  The dollar has been very strong.  When the earnings from abroad are translated into dollars, earnings take a hit because of the strong dollar.  If the euro goes higher, it will help the earnings of multinationals that are reported in dollars.
  • The Morning Capsule is about the big picture and not about an individual company.  The chart of IBM is being used to illustrate the point.
  • Going into earnings, IBM stock has been strong as Wall Street has been positive on the stock.
  • The chart shows when IBM reported earnings.
  • The chart shows that for a split second there was a spike up as earnings were better than the consensus and whisper numbers.
  • The chart shows that after the initial spike, significant selling came in IBM stock, slowly driving it much lower.
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • The VUD indicator shows that there was solid net supply of IBM stock as the stock fell.
  • The reason IBM stock fell was because second quarter revenue was adversely impacted by $900M  due to the strong dollar.
  • The adverse impact for the year for IBM could be about $3.5B due to the strong dollar.
  • For bullish investors, the IBM stock chart is a story of caution.  Most of the Wall Street analysts underestimated the forex impact.  IBM is the first large tech company to report earnings.  The impact of the strong dollar is on full display.  All tech companies are going to be hurt by a strong dollar, but some may have hedged better than others

Housing Starts

Housing starts were weaker than expected.  Housing starts for June came at 1.559M vs. 1.598M consensus.

Building permits came at 1.685M vs. 1.680M consensus.

Please read the section on housing sentiment in yesterday’s Afternoon Capsule for the proper interpretation.

Momo Crowd And Smart Money In Stocks

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

See also  APPLE NEWS WARNS OF A POTENTIAL BULL TRAP

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

For longer-term, please see oil ratings.

Bitcoin

Even though there is some selling, bitcoin is staying strong as the risk sentiment has returned.

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 significantly weaker on ECB rumors.

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 $18.74, and oil futures are $96.95.

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

DJIA futures are up 269 points.

 

STOCK BUYING ON INTEREST RATE HIKE BETS REVERTING

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

Good Bank Earnings

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:

  • The chart compares ETF SPY with Nasdaq ETF QQQ and bond ETF TLT.  The chart further compares four big bank stocks Bank of America (BAC), Citigroup (C ), Goldman Sachs (GS), and JP Morgan (JPM).
  • The chart shows that bonds made a low first in June.  The bond low was followed by a low in QQQ  and then by SPY.
  • The chart shows that TLT, SPY, and QQQ have not made lower lows in July so far.
  • The chart shows that three of the big bank stocks BAC, C, and JPM have made lower lows in July.
  • The chart shows that all four big bank stocks are experiencing a significant rally.
  • JPM earnings were below consensus and whisper numbers.  BAC earnings were in line with the consensus and whisper numbers.  C reported blowout earnings on rising net interest rate margins. GS reported earnings better than the consensus and whisper numbers this morning.
  • GS is a component of DJIA.  DJIA is a price-weighted index and GS carries the second highest weight of 6.19%.  Good earnings from GS and the resulting move up in DJIA futures are creating positive sentiment.
  • The next interest hike bets are reverting to 75 basis points from 100 basis points.  Several Fed officials have said that they prefer 75 basis points so as to not shock the economy.  This is bringing in more buying.
  • The dollar is weakening this morning on reversion of interest rate hike bets to 75 basis points.  This is adding to buying in stocks.
  • Stocks in Europe are stronger on the weaker dollar.  Some of the positive sentiment from Europe is spilling into the US.
  • It is prudent to wait for more evidence before making changes to the protection bands. 

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

There is 🔒 in oil on Biden failing to get Saudi Arabia to make a firm promise to increase oil production.  Saudi Arabia said it is up to OPEC+.

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 🔒 as investors return to buying risk assets.

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 $1706, silver futures are at $18.78, and oil futures are $98.36.

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

DJIA futures are up 271 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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