Hedge Funds Win

Please click here for a chart of 20+ Year Treasury Bond ETF TLT.

Note the following:

• The chart shows that the long bond ETF has fallen to the top band of the support zone.
• Bonds trade inverse to the yield.
• We have been sharing with you in the Capsules that yields at the long end are rising.
• Unless you have been under a rock, you know that over the last few months there has been a chorus of asset allocators in the media singing a song of buying long term bonds.  Their thesis has been that 3.5% – 4% yield on a 30 year bond was attractive, and investors needed to lock in that yield by buying long term bonds.  They themselves have been buying long term bonds for their clients.
• In contrast to the asset allocators, hedge funds have been aggressively short selling long bonds.  As of this writing, the yield on 30 year Treasuries has risen to 4.397%. In absolute terms, the difference between 3.7% and 4.39% may not seem like much, but when you look at it for a 30 year duration, it makes a big difference.  This is reflected in the chart of TLT.
• At least temporarily, hedge funds have won the battle at the expense of asset allocators and their clients.
• The immediate reason for rising yields at the long end has been that the momo crowd has all of a sudden discovered that the U.S. has a serious national debt problem.
• At The Arora Report, we got our members out of long bonds a long time ago.  Since then signals have been given as tactical trades to buy TLT a few times.  You may recall that our strategic position was to buy leveraged inverse long bond ETF TBT. This position was highly profitable.  TBT went from a low of $15.52  in November 2021 to a high of $39.33 in October 2022.  As a comparison TBT is trading at $35.52 as of this writing.  The Arora Report call for the fixed income portion of the portfolio has been to keep it in short term Treasury bills.
• For those who insist on a 60/40 portfolio and insist on buying bonds, so far, The Arora Report call has been spot on.  Due to its importance, the following has been in every Morning Capsule for awhile:

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

• Both hedge funds and asset allocators rushed into Chinese stocks and more importantly Chinese bonds not that long ago.  Many Chinese bonds have recently been decimated.  Chinese currency yuan has been weakening against the dollar.  Chinese stocks have not done well.  ZYX Emerging from The Arora Report has followed China continuously for 16 years.  As both hedge funds and asset allocators were rushing into China, our ratings on China were suspended.
• Gloom is spreading in two areas.
  • The potential housing crisis in China.  The Chinese housing market is overbuilt and over leveraged.  Evergrande, China’s property giant, filed for bankruptcy protection yesterday.
  • Defaults are increasing in the Chinese shadow banking market.
• On the positive side, Applied Materials (AMAT) reported strong earnings.  Applied Materials is one of the biggest manufacturers of semiconductor equipment.  The demand for semiconductors is exploding due to artificial intelligence investments by companies across the world.  Applied Materials is in the ZYX Buy Model Portfolio by The Arora Report, and AMAT is one of our favorite artificial intelligence stocks to buy.  However, this is not a call to buy Applied Materials right here.  The position in the portfolio is long from $16.  AMAT traded as high as $143.62 after hours after release of good earnings.  However, the stock is falling this morning in the premarket on the general malaise about tech stocks.  Consider waiting for a dip in the buy zone to buy.
• On the negative side for stock market bulls, the momo crowd has finally discovered that yields are rising.  They have stopped aggressively buying and are now selling.
• As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.   Please scroll down to see the protection band.

Magnificent Seven Money Flows

In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).

In the early trade, money flows are negative in S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.

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 🔒 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

There has been aggressive selling in bitcoin (BTC.USD). It has fallen close to $26,000 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 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 $1918, silver futures are at $22.68, and oil futures are at $79.13.

S&P 500 futures are trading at 4359  as of this writing.  S&P 500 futures resistance levels are 4400, 4460 and 4600: support levels are 4318, 4200 and 4000.

DJIA futures are down 141 points.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, 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.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

Market Mechanics

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 shows when The Arora Report gave a signal to raise hedges.
• The chart shows that so far in August, aggressive buying by the momo crowd is failing to run up the stock market.
• Wall Street is finally waking up and blaming market mechanics for the sell off.  0DTE options are being singled out for the sell offs that occur late in the day.
• As an Arora Report member, you knew in advance that market mechanics were changing and a sell off may ensue, at least temporarily.  From the Morning Capsule from The Arora Report dated August 14:

In a separate development, for the first time in 2023, market makers are gamma hedged.  This is a major development, and prudent investors should pay attention.  The reason is that about two thirds of the magnitude of the stock market rally in 2023 is attributable to market mechanics.  One of the market mechanics that has helped the stock market run up is short gamma squeeze.  For those who want to understand this deeply, there is a new podcast titled “Market Mechanics: Impact Of Dealers’ Gamma Position Change On The Stock Market” in post production.  The podcast will be available in Arora Ambassador Club.  The club has several other podcasts to help you understand market mechanics in-depth.

• In plain English this means that some of the fuel that led to the stock market rise this year is now spent.

• It is especially noteworthy that Wall Street knew that market mechanics were responsible, in large part, for the rally this year but never expressed that as long as the stock market was rising.  Now that the stock market has pulled back slightly, they are blaming market mechanics.
• We have been sharing with you data in the Morning Capsules showing strong consumer spending.  Since the U.S. economy is 70% consumer based, consumer spending is very important.  Consumers have been flush with cash from government programs and as a result, developed habits of excessive spending.  Of course, you know that the government financed these programs with heavy borrowing.
• It looks like an important prior call from The Arora Report may prove to be spot on – the call was that consumers would run out of excess savings by October.  Now the call is getting support from research from the Federal Bank of San Francisco.  The report says that consumers held less than $190B in excess savings in June and the savings are likely to be exhausted by the end of September. 
• Of special note is that earnings from Walmart (WMT) are better than the consensus.
• Yields on long term bonds across the globe are rising after Federal Reserve minutes released yesterday.  Please read the Afternoon Capsule for details.
• As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.   Please scroll down to see the protection band.

Jobless Claims

Initial jobless came at 239K vs. 240K consensus.

This is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories.  In plain English, adaptiveness means that the model changes itself with market conditions.  Please click here to see how this is achieved.  One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model.  Most models on Wall Street are static.  They work for a while and then stop working when market conditions change.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Tesla (TSLA), Nvidia (NVDA), Alphabet (GOOG), Apple (AAPL), and Amazon (AMZN).

In the early trade, money flows are negative in Microsoft (MSFT) and Meta (META).

In the early trade, money flows are mixed in S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.

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 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin (BTC.USD) has fallen below $29,000.

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 $1932, silver futures are at $22.99, and oil futures are at $80.52.

S&P 500 futures are trading at 4431 as of this writing.  S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.

DJIA futures are up 47 points.

Fed Minutes

Please click here for a chart of semiconductor ETF SMH.

Note the following:

• Semiconductors are the leading sector and prime beneficiaries of the artificial intelligence frenzy.
• The chart shows when Nvidia (NVDA) earnings were reported.
• The chart shows that semiconductors took off when Nvidia guided $11B of revenue vs. $7B consensus.
• The chart shows a downward sloping trendline as part of consolidation after a big run up in semiconductors.
• The chart shows that semiconductors touched the top band of the support zone before it bounced.
• Semiconductor ETF SMH is in both Model Portfolios in ZYX Allocation Alert.
• Semiconductors are the ‘picks and shovels’ plays to generate profit from artificial intelligence.  At the present time, semiconductor picks and shovels plays are the best stocks to invest in artificial intelligence.  Those who want a deeper understanding and next-level information will find several podcasts in Arora Ambassador Club on this subject.
• In a new development related to semiconductors,  Intel (INTC) is scrapping its deal to buy Israeli semiconductor company Tower Semiconductor (TSEM).  The buyout did not receive Chinese approval. The deal has fallen casualty to worsening U.S. China relations. 
• The Chinese government is telling large investment funds to not be a net seller of stocks.  Yesterday we shared with you that Peoples’ Bank of China has lowered its interest rates.  We previously shared with you that the Chinese government was consulting stock market experts on ways to run up the stock market.
• The Chinese government is trying to turn negative sentiment about its economy to positive.  One of the best ways for a government to create positive sentiment about the economy is to run up the stock market. This is also done by the U.S. government without being explicit.  The difference is that the Chinese government is very open and explicit about their attempts to run up the stock market.
• Fed minutes will be released at 2pm ET.
• In The Arora Report analysis, the economic data released since the Fed meeting has made these Fed minutes obsolete.  However, be alert as they may move the markets. 
• As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.   Please scroll down to see the protection band.

Housing

Housing starts came at 1.452M vs. 1.446M consensus.  This data is very strong.  However, building permits are a leading indicator and are reflecting the drop in home builder sentiment we shared with you yesterday in the Afternoon Capsule.  Building permits came at 1.442M vs. 1.460M consensus.

India

There is significant concern that India, China, Russia, and Brazil want to reduce  dominance of the dollar.  For the first time ever, India and U.A.E. conducted a large oil trade with India making payment for oil in rupees.  Traditionally, oil payments are made in dollars.   

Magnificent Seven Money Flows

In the early trade, money flows are positive in Nvidia (NVDA) and Microsoft (MSFT).

In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).

In the early trade, money flows are mixed in S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.

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

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

Oil

API crude oil inventories came at a draw of 6.195M barrels vs. a consensus of a draw of 2.050M barrels.

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 (BTC.USD) is range bound.

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 and bonds are range bound.

The dollar is range bound.

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 $1931, silver futures are at $22.61, and oil futures are at $81.01.

S&P 500 futures are trading at 4445  as of this writing.  S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.

DJIA futures are down 52 points.

Consumers Splurge

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 shows that the stock market backed off after touching the low band of the mini resistance zone but is still significantly above the top support zone.
• RSI on the chart shows that the stock market is coming out of the oversold condition.
• The U.S. economy is 70% consumer based. Therefore, retail sales data carries heavy weight in the adaptive ZYX Asset Allocation Model with inputs in ten categories.   In plain English, adaptiveness means that the model changes itself with market conditions.  Please click here to see how this is achieved.  One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model.  Most models on Wall Street are static.  They work for a while and then stop working when market conditions change.  The U.S. consumer continues to splurge.  Here are the details from the data just released:
  • July retail sales came at 0.7% vs. 0.4% consensus.
  • July retail sales ex-auto came at 1.0% vs. 0.4% consensus.
• In The Arora Report analysis, strong retail sales data is a double edged sword.  On one hand, consumer splurging is postponing the recession.  On the other hand, it will force the Fed’s hand to maintain high interest rates for longer.  
• In spite of strong retail sales, sentiment is taking a hit this morning because of two developments.
  • The rating agency Fitch is warning that it may downgrade credit ratings of several U.S. banks including JP Morgan (JPM).  Previously, Moody’s downgraded ten banks including U.S. Bancorp (USB) and Truist (TFC).
  • Economic data from China is weak.   Here are the details:
    • July retail sales came at 2.5% year-over-year vs. 4.5% consensus.
    • Industrial production came at 3.7% year-over-year vs. 4.4% consensus.
• Peoples’ Bank of China reduced its one year lending facility rate to 2.5% from 2.6% and reduced the 7-day reverse repo rate 1.80% from 1.90%.
• Youth unemployment in China has been rising rapidly.  The Chinese government is responding by saying it will no longer publish youth employment data.  The youth unemployment rate in China is now at 21.3%.
• In an important earnings report for the stock market, Home Depot (HD) is guiding FY23 revenue down 2% – 5% and earnings down 7% – 13%.  The company is also announcing a new $15B share repurchase program.
• In a noteworthy development, Berkshire Hathaway (BRK.B), Warren Buffett’s company, is buying three home builder stocks: Lennar (LEN), D.R. Horton (DHI), and NVR (NVR).
  • Retail investors have been aggressively buying BRK.B stock.
• As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.   Please scroll down to see the protection band.

Magnificent Seven Money Flows

Saudi Arabia and U.A.E. are buying billions of dollars worth of Nvidia (NVDA) chips.  Saudi Arabia has bought 3,000 H100 chips from Nvidia. H100 costs $40K, and Nvidia is calling it “the world’s first computer designed for generative AI.”  Saudi Arabia and U.A.E are aiming to become powerhouses in artificial intelligence.

In the early trade, money flows are positive in Nvidia (NVDA).

In the early trade, money flows are negative in Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).

In the early trade, money flows are negative in S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin (BTC.USD) is range bound.

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 $1936, silver futures are at $22.51, and oil futures are at $81.45.

S&P 500 futures are trading at  4474 as of this writing.  S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are down 256 points.

Market Makers Hedged

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

Note the following:

• The chart shows that QQQ touched the low band of the resistance zone and backed off.
• The chart shows that the trendline supporting the recent rise is now broken.
• RSI on the chart shows that in the very short term the stock market has become oversold.
• Early this morning, the momo crowd aggressively bought stock futures on bad news from China.
  • The latest news is that Zhongzhi Enterprise, a top wealth manager, is unable to make payments on high yield investment trusts it sold to wealthy Chinese.
  • In response to this situation, the banking regulator in China has set up a task force.
  • In separate news, Country Garden, one of the biggest real estate developers in China, is having difficulty making payments on some of its bonds.
• The news that the Chinese regulator is setting up a task force got the momo crowd excited to buy U.S. stock futures aggressively in the early morning.  The momo crowd has a good reason to buy.
  • The chart shows when Silicon Valley Bank failed and the banking crisis occurred in the U.S.
  • In response to the bank failures, the Fed flooded the system with liquidity.
  • Some of the liquidity went into the stock market at the same time the AI frenzy was accelerating.  This caused the rally that started on March 8 as shown on the chart.
  • The momo crowd is hoping that the stock market will now run up because of government intervention to stop more failures in China. 
• As the morning progressed, smart money took advantage of the strength generated by momo crowd buying and started selling.  Smart money selling caused the early morning rally in stock futures to evaporate as of this writing.
• In a separate development, for the first time in 2023, market makers are gamma hedged.  This is a major development, and prudent investors should pay attention.  The reason is that about two thirds of the magnitude of the stock market rally in 2023 is attributable to market mechanics.  One of the market mechanics that has helped the stock market run up is short gamma squeeze.  For those who want to understand this deeply, there is a new podcast titled “Market Mechanics: Impact Of Dealers’ Gamma Position Change On The Stock Market” in post production.  The podcast will be available in Arora Ambassador Club.  The club has several other podcasts to help you understand market mechanics in-depth.  
  • In plain English this means that some of the fuel that led to the stock market rise this year is now spent.  
• As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.   Please scroll down to see the protection band.

Magnificent Seven Money Flows

In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).

In the early trade, money flows are mixed in S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.

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

Bitcoin (BTC.USD) is range bound.

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 $1942, silver futures are at $22.76, and oil futures are at $82.09.

S&P 500 futures are trading at 4473 as of this writing.  S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are down 36 points.