STOCK BUYING ON HOPE STRATEGY AHEAD OF KEY EARNINGS, THE FED AND GDP

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By Nigam Arora & Dr. Natasha Arora

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

Pivotal Week

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 compares S&P 500 ETF SPY with Nasdaq 100 ETF QQQ, semiconductor ETF SMH, commodities ETF PDBC, and long duration innovation ETF ARKK.
  • The chart shows that commodities ETF PDBC has done the best year to date, and long duration ETF ARKK has done the worst.
  • The chart shows that starting in mid June the tables turned –  PDBC has been hit hard, and ARKK has experienced a strong rally.
  • The foregoing behavior is the result of increasing fears of recession starting mid June and momo crowd buying on the hope strategy that the Fed will stop fighting inflation.
  • With the context given above, this is a pivotal week.
    • FOMC is meeting, and we will know their decision on Wednesday.  The consensus is for a 75 basis point rate hike.
    • GDP will be released on Thursday.  The consensus is 0.5%.  In our analysis at The Arora Report, there is a high probability of a negative print.  If there is a negative print, it will be two negative numbers in a row. Since World War II, there have been 10 incidents of two consecutive quarters with negative GDP – every time there was a recession.  This is a 100% batting average. 
    • Key earnings are ahead this week from Alphabet (GOOG), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), and Microsoft (MSFT).
  • Expect significant volatility based on the Fed, GDP, and earnings. In many ways, this is a make or break week for the stock market.  
  • As is often the case, there is a sharp contrast in the behavior of the momo crowd and smart money.  Smart money understands that there is a significant risk both to the upside and the downside.  As a result, smart money is cautious.  The Arora Report recommendation is to give precedence to return of capital over return on capital.
  • The momo crowd uses the hope strategy.  They are hoping for great earnings, great projections, the Fed ready to back down, and a great GDP.
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Germany

July ifo Business Climate Index came at 88.6 vs. consensus of 90.2. This is the weakest number in two years.  In our analysis at The Arora Report, Germany is at the brink of a recession.  

South Korea

South Korea is a major export economy, and that is the reason to pay attention to it.  As a reference, Samsung (SSNLF) is a South Korean company.  South Korea’s leading index fell for the 13th consecutive month in June.

Gene Editing

CRISPR gene editing is behind the hopes of several biotech companies.  A lot of money has gone into gene editing.  There is a report from Tel Aviv University that CRISPR gene editing can trigger cancer in the long run.  If the report gets media attention, it may lead to a selloff in biotechs.  As an indicator, stocks to watch are CRSP, EDIT, and NTLA.

In The Arora Report analysis, if there is no selloff, this will be an indication that the momo crowd is in the buying mode irrespective of the news or facts. 

China Warns

China is strengthening its warning, including a military response to Nancy Pelosi’s visit to Taiwan.  Prudent investors should keep a close watch.  The ETF to watch is EWT.  Taiwan has been continuously covered in ZYX Emerging for 15 years.

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 🔒 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.

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For longer-term, please see oil ratings.

Bitcoin

Over the weekend, bitcoin bulls were proclaiming that the bottom is in.  Bitcoin is range bound this morning.

Markets

Our very, very short-term early stock market indicator is 🔒, but expect the market to open 🔒.  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 $1723, silver futures are at $18.51, and oil futures are $96.61.

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

DJIA futures are up 135 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.

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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.

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This post was just published on ZYX Buy Change Alert.

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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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