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

 

EXCELLENT JOBS REPORT – MOMO NARRATIVE PROVEN WRONG

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

Excellent 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:

  • The Jobs Report is excellent. It is shockingly better than the predictions of the momo gurus.  It is even better than the predictions of non-momo gurus.  Here are the details:
    • Nonfarm Payrolls came at 528K vs. 258K consensus.
    • Nonfarm Private Payrolls came at 471K vs. 200K consensus.
    • The unemployment rate came at 3.5% vs. 3.6% consensus.
    • Average Work Week came at 34.6 vs. 34.5 consensus.
    • Average  Hourly Earnings 0.5% vs. 0.3% consensus.
  • Smart money is selling stocks on the news.
  • The chart shows that the stock market has run up on the momo gurus’ narrative that the Fed will stop fighting inflation, stop raising rates, and rate cuts are not far away.
  • The chart shows that RSI is overbought. When RSI is overbought the market is vulnerable to a pullback.
  • The Jobs Report shows that the momo narrative is shockingly wrong.  Will momo gurus admit that they were wrong and change their narrative?  There is no chance of them admitting that they were wrong.  Expect them to come up with a new narrative to try to run up the market even higher.
  • Consider not falling for the momo gurus narrative.  Instead, consider watching the data.
  • There is no change in the game plan previously given.  Here is the game plan again for your convenience.

The Game Plan

Here are the key points of the game plan.

  • Historically the stock market is weak in September and October in a midterm election year.

  • Historically the market runs up after the election going into the year-end.

  • The plan continues to be to take full or partial profits on tactical positions that were recently initiated based on individual preference and the rest of the portfolio, in the profit-taking zone shown on the chart.

  • The plan is to continue to hold good long term positions.

  • The plan is to buy tactical positions again if and when the market pulls back.

  • For those who can handle short term trades, the plan is to continue to undertake short term trades both on the long and short sides as good setups develop.

  • The plan is to not fall into the trap of FOMO (fear of missing out).

  • The plan is to start or add to very long term positions when the data justifies such action based on probablity-adjusted risk rewards.

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

Gold is being 🔒 on the strong jobs report.

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 🔒 oil in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is being bought this morning.

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 $1781, silver futures are at $19.52, and oil futures are at $88.08.

S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.

 futures are down 207 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.

 

GAME PLAN – FUNDS BUYING STOCKS ON NO CHOICE BUT TO HOLD THE NOSE AND BUY

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

No Choice

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  UNPRECEDENTED BANK OF ENGLAND INTERVENTION RESCUES MOMO CROWD AFTER APPLE RUINS THE RALLY

Note the following:

  • The chart shows that the market is in the profit taking zone.
  • The chart shows that the rally was on low volume indicating a lack of conviction
  • From yesterday’s Afternoon Capsule:

The chart shows when ISM Services Index was released.  The chart shows a strong rally after the release of the data.  ISM Index came at 56.7%.  This is a very strong number.  The market could have interpreted this very strong number to support what Fed officials have been telling us – the Fed continues to raise rates to fight inflation contrary to the momo gurus’ narrative that the Fed will not fight inflation and cut rates.

  • The market chose to focus on the Prices Index that is part of the data release.
  • The Prices Index decreased to 72.3%.  It is down for the third consecutive month.
  • An important factor in the rise of the stock market here is that many fund managers have no choice but to hold their noses and buy stocks.
    • The performance of the fund managers is measured against their benchmarks.
    • The benchmarks are typically indexes.
    • The fund managers attempt to beat their benchmarks.
    • The bonuses of the fund managers are based on meeting their benchmarks or at a minimum not lagging their benchmarks by a large amount.
    • There is an old saying that no fund manager ever got fired for losing money but badly lagging the benchmark is career suicide.
    • As the market rises, in order to keep at least close to their benchmarks, many fund managers feel they have no choice but to hold their noses and buy stocks irrespective of their analysis.  This is exactly what we are seeing now.
  • Individual investors, most investment advisors, and many money managers have a choice to give precedence to return of capital over return on capital.
    • Especially for individual investors, the prudent thing is to avoid losing money as there is no pressure to meet a certain benchmark.

The Game Plan

Here are the key points of the game plan.

  • Historically the stock market is weak in September and October in a midterm election year.
  • Historically the market runs up after the election going into the year-end.
  • The plan continues to be to take full or partial profits on tactical positions that were recently initiated based on individual preference and the rest of the portfolio, in the profit-taking zone shown on the chart.
  • The plan is to continue to hold good long term positions.
  • The plan is to buy tactical positions again if and when the market pulls back.
  • For those who can handle short term trades, the plan is to continue to undertake short term trades both on the long and short sides as good setups develop.
  • The plan is to not fall into the trap of FOMO (fear of missing out).
  • The plan is to start or add to very long term positions when the data justifies such action based on probablity-adjusted risk rewards.

Jobless Claim

Initial Claims came at 260K vs. 260K consensus.

Bank Of England

From the Bank of England (BOE), monetary policy summary:

The United Kingdom is now projected to enter recession from the fourth quarter of this year. Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative.

The Bank of England raised its key interest rate by 0.5% to 1.75%.

BOE expects inflation to go over 13% in Q4 of 2022 and to remain at very elevated levels through 2023.  BOE expects inflation to fall to 2% two years from now.

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

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 range bound and not keeping up with aggressive buying in speculative stocks at this time.

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 $1796, silver futures are at $20.09, and oil futures are at $90.62.

S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.

 futures are down 67 points.

 

OPEC+ DISAPPOINTS BIDEN, STOCK BUYING ON PELOSI LEAVING TAIWAN

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

OPEC+ Disappoints

Please click here for a chart of WTI crude oil futures (CL_F).

Note the following:

  • You may recall that President Biden recently visited Saudi Arabia after treating Saudi Arabia as a pariah over the killing of Saudi American journalist Khashoggi.  The widespread belief is that Biden went to Saudi Arabia to persuade Saudi Arabia to increase oil output.  Biden wants to lower gas prices ahead of the midterm election.  At that time the White House denied that the purpose of the visit was to lower oil prices.
  • OPEC+ has met and is disappointing Biden.  The hope was for OPEC+ to raise production by 400K bpd or more for September.  OPEC+ increased production by 600K for July and August.  For September, OPEC+ is agreeing to increase output by 100K bpd.
  • On OPEC+ news, oil is moving higher even though API data was bearish.
  • The chart shows that even though oil has moved up today on OPEC+ news, oil is in downtrend.  For investors this is important because lower oil prices will reduce  inflation.
  • Investors are celebrating Pelosi leaving Taiwan safely by buying stocks.
  • ISM Non-Manufacturing Index will be released at 10am ET.  The consensus is 53.8%.  This is often market moving data.
  • St. Louis Fed President Bullard says that he expects economic growth in the second half of the year and the Fed to keep on raising interest rates.  Bullard thinks the target range for Fed funds should be 3.7% – 4%.  Bullard thinks a soft landing is possible.  Bullard was the first one among Fed officials to see inflation coming.
See also  WEEKLY STOCK MARKET DIGEST: MOMO CROWD STOPS HUNTED – WALL STREET'S MACHINES SELLING STOCKS – QUAD WITCHING

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

API showed a build of 2.165M barrels vs. a consensus of a draw of 467K barrels.

Oil is moving higher on OPEC+ news overshadowing API data.

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 along with speculative stocks.

Solana wallets have apparently been hacked in a serious blow to crypto.  Hackers have also stolen about $200M from blockchain bridge Nomad.

Michael Saylor has become a prominent figure in the crypto world after his company MicroStrategy (MSTR) started acquiring bitcoins.  Saylor is resigning as the CEO of MSTR and will assume the new role of Executive Chairman, apparently to focus on bitcoin.

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 $1787, silver futures are at $20.10, and oil futures are $95.61.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.

DJIA futures are up 166 points.

 

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

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

Tail Risk

Please click here for a chart of Taiwan ETF (EWT).

Note the following:

  • Ahead of Pelosi’s visit to Taiwan, Chinese jets have flown close to Taiwan.  Pelosi will be on a military plane escorted by US fighter jets.
  • China has threatened to shoot down Pelosi’s plane and take other military actions.
  • In The Arora Report analysis, there is a medium risk of confrontation, but there is a low risk of escalation.  The reason is that there is no significant increase in Chinese navy build up near Taiwan.
  • The chart shows that the stock market in Taiwan has had only a slight pullback on tensions with China even after a strong recent rally.  Since Taiwan is the epicenter of a potential conflict, only a slight pullback in Taiwanese market indicates that investors in Taiwan do not expect a conflict with China in the near term.
  • The chart shows that The Arora Report rating on Taiwan has been mild sell.
  • The chart shows the Arora buy zone has been nearby.  The inference here is that a dip in the buy zone is likely to be a buying opportunity and the Arora rating may change from mild sell to mild buy.  Of course, the situation can change very quickly.  Therefore, before buying it is important to stay tuned to ZYX Emerging.  ZYX Emerging has covered Taiwan for 15 years.
  • Even though the risk of escalation is low, investors should be mindful of the tail risk to the stock market in general.  
  • This morning, after incessant buying over the last month, the momo crowd is selling stocks on the Taiwan risk.
  • Money is also moving out of stocks into the safety of Treasury bonds on Taiwan risk.

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

On Taiwan risk, money is moving into gold.

Gold has broken above the psychological resistance of $1,800.

The momo crowd is 🔒 gold in the early trade on the Taiwan risk.  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 🔒 oil in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is seeing some selling along with speculative stocks.

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 $1804, silver futures are at $20.44, and oil futures are $94.31.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.

DJIA futures are down 176 points.

 

WALL STREET FRONT RUNS BLIND MONEY IGNORING PELOSI TAIWAN VISIT, ECONOMIC CONTRACTION AND KASHKARI

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

Front Running

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  WEEKLY STOCK MARKET DIGEST: INVESTORS PAY ATTENTION TO PROTECTION BAND CHANGES – A BINARY OUTCOME MAY BE AHEAD BEFORE THE OTHER SHOE DROPS

Note the following:

  • The chart shows that the stock market is now in the profit taking zone for tactical positions.
  • The chart shows that RSI is overbought.  Overbought markets tend to be vulnerable to a pullback.  You need to be aware that right now momo gurus have a different narrative about RSI – their narrative is that the strength in RSI indicates a higher market ahead.
  • Today is the first day of the month.  Blind money pours into Wall Street on the first few days of a new month.  Blind money is the money that is invested without analysis and irrespective of market conditions.  Wall Street knows this and is front running blind money this morning. Blind money is typically invested in the afternoons.
  • Last night, futures were lower on a statement by Minneapolis Fed President Neel Kashkari, potential Nancy Pelosi visit to Taiwan, and new economic data from China.  This morning, futures have run up on Wall Street front running.  However, as of this writing futures are pulling back on reports related to Taiwan.
  • Kashkari said that the Fed is serious about bringing inflation down to 2%.  This runs counter to the momo gurus’ narrative that the Fed is going to stop raising rates and will start cutting rates.
  • Two sources are reporting that Nancy Pelosi will visit Taiwan on a military plane.  China has threatened to potentially shoot down her plane.  As of this writing, there is no official confirmation.
  • Purchasing Managers’ Index (PMI) is a leading indicator and carries heavy weight in our models.  Please click here to see 10 crucial categories on input to ZYX Asset Allocation Model. A PMI number below 50 indicates economic contraction.
  • China’s July manufacturing PMI fell to 49.0 vs. 50.4 consensus.
  • The PMI data from Europe is painting a dim picture.
    • July manufacturing PMI in France fell to 49.5 vs. 49.6 consensus.
    • July manufacturing PMI in Spain fell to 48.7 vs. 50.2 consensus.
    • July manufacturing PMI in UK fell 52.1 vs. 52.2 consensus.
  • On the positive side, manufacturing PMI in India rose to 56.4 vs. 53.8 consensus.

Grains

The first ship carrying 26,000 tons of corn sailed from Ukraine as Russia has agreed to allow Ukrainian grain to be exported.  The first ship’s name is Razoni, and it is flagged in Sierra Leone.

Our call on grains has proven spot on.  Ukraine and Russia are two of the largest grain producers in the world, especially wheat.  At the height of the frenzy created by the media and momo gurus to buy grains, The Arora Report gave a signal to short sell wheat near the high to take advantage of the frenzy created by momo gurus.  Our call was that there will never be any sanctions on grain and a way would be found to export grain.

Wheat prices have tumbled in recent days and our wheat short position in wheat ETF (WEAT) in ZYX Short is highly profitable.

As is often the case, the momo crowd is left holding the bag on grains with massive unrealized losses.

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 running up on a weaker dollar.

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 prices are falling on demand destruction.

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

For longer-term, please see oil ratings.

Bitcoin

Over the weekend, bitcoin bulls were projecting a 35% rally this week.  However this morning, short sellers are pressing hard causing the rally to stop 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 after a big bond rally last week.

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 $1788, silver futures are at $20.47, and oil futures are $96.91.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.

DJIA futures are down 158 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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