A Shooting Star

Please click here for a chart of  Nasdaq 100 ETF (QQQ).

Note the following:

• A shooting star is a negative reversal pattern.
• The chart shows a potential shooting star pattern is forming.  It still needs confirmation to be valid.
• The traditional confirmation will occur if the market falls in the support zone shown on the chart.
  • Due to aggressive momo crowd buying, prudent investors should consider a confirmation only if the market falls below the low band of the support zone.
• Countering a potential shooting star pattern is that RSI, as shown on the chart, is no longer overbought.
• The chart shows that the volume has been low.  This indicates that there is low conviction.
• At a time when the Fed is trying to tighten financial conditions to control inflation, the momo crowd’s enthusiasm for buying stocks has actually resulted in easier financial conditions.  
• The Fed balance sheet increased $4.5B at a time when the Fed’s declared policy is quantitative tightening to reduce  its balance sheet.
• We have previously shared with you that the Fed is not buckling the way the momo crowd wants the Fed to buckle.
  • San Francisco Fed President Mary Daly is saying that she wants financial conditions to remain tight.  Daly is saying that her base case is a 50 basis point rate hike in September, but she is open to a 75 basis point rate hike.  
• To persuade their followers to continue to aggressively buy stocks, the momo gurus are responding to the statements of three Fed officers by saying that these Fed officers do not know what they are doing.  It is interesting that the same momo gurus loved the same Fed officers when these officers were saying that inflation was transitory and they kept printing money against all evidence.
• University of Michigan survey results will be released at 10 am ET.  Prudent investors will be carefully watching inflation expectations.  This may be a market moving event.
• The momo crowd is undeterred and continues to aggressively buy speculative low quality stocks in the early trade.
• Today is Friday.  Short squeezes often occur on Fridays.

69.5% Interest Rate – You Are Reading It Right

Argentina has increased its benchmark interest rate by 950% basis points to 69.5%  This is the second rate hike in just two weeks.

The new economic minister of Argentina is also promising to stop printing money.  To the best of our knowledge, Argentina is the only major country that is promising to stop printing money.

Why is Argentina taking such dramatic steps?  As a result of government policies, consumer prices rose 71% in July from a year ago.  On a monthly basis, the inflation rate went up 7.4% vs. 7.3% consensus.

Argentinian peso lost about 15% of its value in a month.   Many businesses are increasing prices by 20% or more.

Chinese Companies To Delist From New York

There is a new indication of a worsening relationship between the US and China.

Several major Chinese state owned companies are going to delist from New York.  These include SNP, ACH, SHI, and LFC.

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 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 🔒 but can quickly turn 🔒.  With a great track record, this indicator 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 $1806, silver futures are at $20.44, and oil futures are $92.79.

S&P 500 futures resistance levels are 4318, 4400 and 4460: support levels are 4200, 4000 and 3950.

DJIA futures are up 155 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.

Producer Price Index

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:

• One day after better than expected Consumer Price Index (CPI), Producer Price Index (PPI) is also softer than expected.
  • Investors should ignore year over year numbers and instead focus on month over month numbers.
    • To be successful, investors should not get caught up in their viewpoint.  More importantly, they should not justify their viewpoint by picking and choosing the data.  Right now, stock market bears are picking year over year inflation data to justify their viewpoint.
    • The purpose of trading and investing is not to justify a certain viewpoint but to maximize wealth generation while controlling risks.  Investors should consider being neutral and letting the data speak for itself without being prejudiced by a viewpoint.
    • Please click here for the podcast on maximizing wealth generation.
  • July PPI fell 0.5% vs. 0.3% consensus.
  • July Core PPI rose 0.2% vs 0.4% consensus.
• Initial jobless claims came at 262K vs. 263K consensus.
• The chart shows another move up in the stock market after yesterday’s rally on softer PPI.
• The chart shows that the market is now approaching the low band of the resistance zone.
• The chart shows that RSI is overbought and beginning to roll over.  This indicates that the rally is overdone.
• It is too early to tell how Fed officials will react to PPI, but they are not yet buckling after soft CPI.  Here are the comments from two Fed officials after the CPI but prior to PPI.
  • Minneapolis Fed President Kashkari said that we are far from controlling inflation. He wants the Fed to raise its benchmark rate to 3.9% by the end of 2022 and to 4.4% by the end of 2023.  
  • Chicago Fed President Evans said that inflation is unacceptably high.  Evans sees 3.4% rate by the end of 2022.  
• There is an old saying, “Do not fight the Fed.”  Right now the stock market is fighting the Fed.  The rally is based on the presumption that the Fed will not only stop raising rates but also start cutting rates.
• Where the stock market goes from here will depend on if the Fed buckles or not.  If the Fed buckles, expect the stock market to go higher. If the Fed does not buckle, expect the market to significantly pull back.
• An important data point that the stock market is ignoring is that quantitative tightening is scheduled to pick up steam in September as the Fed plans to double the amount of Treasury and mortgage bonds roll-off to $95B.  Will the Fed back off from quantitative tightening? 
• The easy work is done on inflation as prices of oil and commodities have declined and so have the prices of airline tickets and used cars. However, the hard work is still ahead.  For example, rents are soaring.  Median rent has crossed $2,000 per month for the first time ever.  The rate of rent increases is the fastest in 30 years.  For the time being, the stock market is ignoring the hard work on inflation that is still ahead.
• Due to the enthusiasm of the investors, the reality is that financial conditions have eased even though the Fed is trying to tighten financial conditions and tighter financial conditions are needed.
• The dollar is dramatically weaker.  From yesterday’s Afternoon Capsule:

A dramatic drop in the US dollar is a double-edged sword.

• On the positive side, it is good for the earnings of US multinationals.

• On the negative side, the drop in the dollar is inflationary. This is happening precisely at a time when investors are celebrating lower inflation.  Investors need to look ahead and keep a close eye on the dollar.

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

There is significant bullishness in bitcoin as it approaches $25,000.

Markets

Our very, very short-term early stock market indicator is 🔒 but can quickly turn 🔒.  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 $1812, silver futures are at $20.54, and oil futures are $93.39.

S&P 500 futures resistance levels are 4318, 4400 and 4460: support levels are 4200, 4000 and 3950.

DJIA futures are up 263 points.

Good News

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:

• There is good news on inflation.  Here are the details of the CPI data:
  • July CPI came at 0.0% vs. 0.2% consensus month over month.
  • Core CPI came at 0.3% vs. 0.5% consensus month over month.
  • CPI rose 8.5% in July year over year.
  • Investors should focus on month over month numbers and not on year over year numbers.
• Investors should be mindful of what we wrote in yesterday’s Morning Capsule.

In this case, history may help. With the benefit of hindsight, in the 1970’s, the Fed made the mistake with its stop and go policy.  The Fed would ease when inflation data would become better and tighten when inflation data would get worse. The policy resulted in raging inflation in the 1980’s.  The Fed officials are aware of the mistake of the 1970’s.  Here is the key question, “Do the Fed officials have the fortitude and foresight to not repeat the mistake of the 1970’s?”

• The probability is high that the Fed will raise rates in the September meeting.  Rents are a big part of CPI.  Rents are spiking up and will likely show up in CPI over the coming months.  Wage inflation is slowing down in certain sectors of the economy such as information technology, but it is likely to continue in other sectors of the economy, especially for blue collar workers.  In information technology, there is anecdotal evidence of employers laying off expensive workers with plans to replace them with cheaper workers.
• The odds of a recession have gone down, but still stand at 70%.  
• Earnings are still likely to take a hit in the future quarters.
• Investors also need to be aware of seasonality.  September and October tend to be weak months.
• Investors also need to pay attention to positioning.
  • The momo crowd is positioned for a big rally from here, but may have already deployed much of the cash.
  • Smart money is holding significant amounts of cash but may be reluctant to deploy cash.
  • Fund managers do have cash and may hold their noses and buy to keep up with their benchmarks.
• The chart shows that in the short term the market is overbought.  Overbought markets tend to be vulnerable to pullbacks.
• The chart shows that the resistance zone is ahead.
• The chart shows that the rally has been on low volume.  This is a negative.
• There will be adjustments to the protection bands in a gradual, careful manner.

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 🔒 oil in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is seeing buying on CPI number.

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 significantly 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 $1811, silver futures are at $20.58, and oil futures are $90.52.

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

DJIA futures are up 447 points.

Important Inflation Data Ahead

Please click here for a chart of Bed Bath & Beyond (BBBY).

Note the following:

• The Morning Capsule is about the big picture and not individual stocks.  The chart of BBBY is being used to illustrate the meme and momo crowds stampede ahead of the all important Consumer Price Index (CPI) data. BBBY is a meme stock.
• The chart shows a move of over 100% near its highs yesterday over a two day period.
• The chart shows that the move in BBBY was on very heavy volume.
• In addition to BBBY, the meme crowd is stampeding into stocks such as AMC and GME.
• The momo crowd is not far behind the meme crowd.  The momo crowd is aggressively buying speculative stocks that do not have good fundamentals.
• We wrote in yesterday’s Morning Capsule:

Over the weekend, the new momo narrative has taken shape.  The new narrative is that a new bull market has started. No one can argue with the beauty of this new narrative as it is not based on any data or something the Fed may do.  This way the momo gurus can be proven wrong only if the stock market drops.

• Momo gurus are aggressively pushing this new narrative, and the new narrative is beginning to take hold.
  • Nasdaq is only 1% away from entering a new bull market.
  • The crowd is expecting a new bull market to start either today on buying using the hope strategy before the release of CPI data or at the latest, tomorrow after the release of the CPI data. 
• It is easy for momo gurus to shape the narrative because the consensus of CPI is a rise of 0.2% month over month. Multiply 0.2% by 12 and you get 2.4% annual inflation rate.   Do not confuse this with year over year inflation.
• The Fed is not focused on headline CPI but the Core CPI. The consensus for Core CPI is 0.5% month over month or 6% annualized.
• In this case, history may help. With the benefit of hindsight, in the 1970’s, the Fed made the mistake with its stop and go policy.  The Fed would ease when inflation data would become better and tighten when inflation data would get worse. The policy resulted in raging inflation in the 1980’s.  The Fed officials are aware of the mistake of the 1970’s.  Here is the key question, “Do the Fed officials have the fortitude and foresight to not repeat the mistake of the 1970’s?”
• The Federal Reserve Bank of New York has released a survey showing that inflation expectations declined sharply in July.
  • One year inflation expectations declined to 6.2% from prior 6.8%.
  • Three year inflation expectations declined to 3.2% from prior 3.6%.
  • Both declines were broad based across all income groups.
  • The largest decline was among those with no more than a high school education and a household income of less than $50,000.
  • In The Arora Report analysis, the lower income group largely bases its inflation expectations on the price of gas.  The price of oil has declined from $130 to $91.88 as of this writing.
• Productivity keeps on falling.
  • Q2 Productivity – Preliminary showed a decline of 4.6% vs. consensus of a decline of 4.5%.
  • Q2 Unit Labor Costs – Preliminary came at 10.8% vs. 9.3% consensus.
• In The Arora Report analysis, falling productivity is not good for the economy or the stock market in the long term.

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 🔒 oil in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is seeing light selling on disappointment that yesterday’s buying by the whales was not able to push bitcoin over $25,000.

Markets

Our very, very short-term early stock market indicator is 🔒 but expect the momo crowd to push the market higher.  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 $1808, silver futures are at $20.60, and oil futures are $91.88.

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

DJIA futures are down 12 points.

New Bull Market Narrative

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:

• After a strong jobs report, the probability is very low that the Fed will conform to the momo crowd’s narrative that the Fed will stop raising interest rates and start cutting interest rates.  This momo crowd narrative had been largely responsible for the stock market rally.  For details, please see Friday’s Morning Capsule.
• In Friday’s Morning Capsule we wrote,

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.

• Over the weekend, the new momo narrative has taken shape.  The new narrative is that a new bull market has started. No one can argue with the beauty of this new narrative as it is not based on any data or something the Fed may do.  This way the momo gurus can be proven wrong only if the stock market drops.
• The chart shows that the market is running up again but is in the profit taking zone.
• The chart shows that RSI is overbought.  Overbought markets tend to be vulnerable to a pullback.
• The chart shows that the rallies have been on low volume.  This is a negative.
• This morning there is also buying attributable to the Senate passing the Inflation Reduction Act.
  • The power of private equity lobbying is on full display. The loophole that allows private equity to pay taxes at 20% rate instead of 37.5% survived.  Also, the minimum corporate tax of 15% will not be applicable to many private equity companies.
  • There is aggressive buying is solar, wind, and EV stocks due to incentives in the Act.
  • The biggest beneficiary seems to be First Solar (FSLR).  The other beneficiaries are NOVA, RUN, and SPWR.  Be careful with solar ETF TAN because it has many Chinese companies.  Tesla (TSLA) is also a beneficiary.
  • Pharmaceutical companies are big losers.
  • The market is buying the winners from the Act, but are they selling the losers from the Act?  Of course not.
• There are three developments that theoretically should take some steam out of the market, but in practice, expect the momo crowd to be oblivious and aggressively buy on the new narrative of a bull market.
  • Popular semiconductor company NVDA is unexpectedly lowering its guidance due to lower demand for gaming products.
  • SoftBank (SFTBY) is announcing a record $23B loss for the quarter.  SoftBank has been single handedly responsible for some of the high valuations in the tech sector.
  • Warren Buffett’s Berkshire Hathaway (BKR.B) booked $43.8B loss.  For those interested in deeper knowledge, please listen to the podcast series on stagflation that analyzes 41 stocks in Buffett’s portfolio to give you the knowledge that you need.

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

Note that the momo crowd was consistently buying oil at high prices, as high as $130.  Now, oil has fallen to $88, and the momo crowd is 🔒.  Also, note that smart money was consistently 🔒 oil at high prices and has generated significant profits in oil whereas the momo crowd has experienced significant losses.

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is above $24,000 on whale buying.

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 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 $1798, silver futures are at $20.28, and oil futures are $88.21.

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

DJIA futures are up 173 points.