WEEKLY STOCK MARKET DIGEST: PAY ATTENTION: FINANCIAL CONDITIONS EASING AT A TIME WHEN THE FED WANTS TIGHTER CONDITIONS

Twitter
LinkedIn
Facebook

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.’

INVESTORS BE CAREFUL NOT TO BECOME A BAG HOLDER, $2 TRILLION OPTION EXPIRATION

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

Be Careful

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

Note the following:

  • The Morning Capsule is about the big picture and not about an individual stock.  A chart of BBBY is being used to illustrate the bigger point.
  • We have been warning you to be careful about what you hear from momo gurus and in the media.  The momo gurus’ job is to persuade you to buy stocks.  It is not the momo gurus’ job to provide you with unbiased analysis or provide you with accurate information or to protect you from losses.
  • The case of Bed Bath & Beyond is a magnification of what has been happening on a smaller scale in many stocks.
  • One major investor is an idol of the meme and momo crowds.  This major investor has a very large following.  He bought BBBY stock at an average price of $15.30.  Meme and momo crowds followed, running up the stock as high as $30.06.
  • Bed Bath & Beyond fell as low as $4.38, creating a major loss for this major investor and his followers.
  • The chart shows that the major investor’s related excitement ran up the stock to over $11 this month.
  • The chart shows when the news broke of the major investor filing of buying call options with strike prices of $60 – $80.  Normally, an investor would buy call options with a strike price of $80 only if the investor expected the stock to go above $80.
  • The momo and meme crowd got stars in their eyes, and they were dreaming of the profits they would make when the stock would go over $80 from a recent low of $4.38.  To most, it was a sure thing because the major investor was leading them.
  • The chart shows BBBY stock spiking to about $28 on the news of the major investor’s option buying.
  • The chart shows the Arora signal to short sell near the top.
  • The chart shows that in the middle of all of this bullishness the stock unexpectedly fell as low as $18.05.
  • One of the Arora signals to take partial profits was given at $18.61.
  • What caused the unexpected drop in BBBY stock?  It was not known at that time, but now we know that the major investor was selling.
  • The chart shows that the meme and momo crowds ran up the stock again.  After all, to the momo and meme crowds, every dip is a buying opportunity.
  • The chart shows that a new Arora short signal was given at $20.08. The first target zone was $9 – $11.50.
  • The stock fell as low as $9.80 in the Arora target zone. What caused the stock to drop? The news broke after hours that the major investor had sold all of his shares into the runup.
  • The chart shows when the major investor sold his shares.  The major investor pocketed $68M in profits.
  • Momo and meme crowds suffered big losses. Unfortunately, many have become bag holders.
  • What did momo and meme crowds learn from their big losses on BBBY? They are again aggressively buying BBBY.  Why are they buying it again?  They are buying because the stock has dipped and every dip is a buying opportunity.
  • It is worth repeating that the BBBY story is simply a magnification of what has been happening lately in many stocks. Investors need to be guard against becoming a bag holder. 
  • There are many opportunities for those who can short sell.  For those who do not short sell and only buy long, it is time to be patient and not get sucked into FOMO (fear of missing out). 

$2 Trillion Option Expiration

Options with about $2 trillion in notional value are expiring today.  It is putting downward pressure on the stock market in the early trade.

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is seeing selling in sympathy with selling speculative stocks related to option expiration.

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 $1768, silver futures are at $19.16, and oil futures are $88.64.

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

 futures are up/down 185 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  TACTICAL TARGET IS S&P 500 4100-4200 – LONG WAY TO GO FOR INFLATION TO COME DOWN TO FED’S TARGET

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.

 

FINANCIAL CONDITIONS EASING AT A TIME WHEN THE FED WANTS TIGHTER CONDITIONS

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

Utilities Hit A New High

Please click here for a chart of utility ETF XLU.

Note the following:

  • Nobel Prize winner Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon.” In plain English, it simply means there is too much money in the system.
  • To cool inflation down, the Fed has been raising interest rates and is about to step up quantitative tightening on September 1.
  • The reality is that due to investor behavior, financial conditions have eased instead of tightening.
  • The momo crowd has stars in their eyes, and they are chasing tech stocks, highly speculative stocks, and meme stocks.
  • Non-momo investors are not far behind.  Among other sectors, they are chasing utilities.
  • The chart shows that utility ETF  hit a new high.
  • Traditionally, utility stocks have several characteristics.
    • They are low beta stocks.  In plain English, they do not move as much as the rest of the market.  However, the chart shows that this is not the case this time.
    • Utilities are considered highly defensive stocks.  At a time of high uncertainty, like we are in now, it is not common for investors to chase utility stocks.
    • Utilities borrow a lot of money.  As interest rates rise, their debt payments go up.  For this reason, historically utilities do not do well in a rising rate environment.  However, the chart shows that is not the case this time.
  • Why are utility stocks running? Here are the reasons:
    • Have you seen your utility bills lately? Utilities are rapidly raising rates, contributing to inflation.
    • Investors who do not feel comfortable chasing tech stocks and speculative stocks somehow feel comfortable chasing utility stocks because they think utility stocks are safe.  It is a sign of too much money in the system.
    • Utilities are regulated.  State regulators allow a certain return, typically about 10%.    Utilities are investing heavily in solar and wind power.  This causes utility assets to go up and allows utilities to win significant rate increase approvals from regulators.
  • The Fed can not possibly be happy about financial conditions easing at a time when the Fed is trying hard to tighten financial conditions.  
  • For investors, here is the key question: Will the Fed continue to fight inflation, or will the Fed buckle?

Jobless Claims

Weekly initial claims came at 250K vs. 266K consensus.  This indicates that the employment picture is staying strong.

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 🔒 in 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 🔒.  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 $1780, silver futures are at $19.77, and oil futures are $89.61.

S&P 500 futures resistance levels are 4318, 4400 and 4460: support levels are 4200, 40000 and 3950.

 futures are up 13 points.

 

DATA FROM UK SPOILS MOMO STOCK MARKET PARTY, FED MINUTES AHEAD

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

UK Data

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:

  • Momo gurus’ job is to persuade their followers to buy stocks, and the momo crowd professes to know that the stock market is going much higher.  They have no real use for data, especially data from overseas.  However, the momo crowd faces a problem – there is smart money and other groups in the stock market that pay attention to the data.
  • The chart shows that early this morning there was selling pressure on inflation data from the UK.
    • Consumer Price Index (CPI) in the UK rose 0.6% month over month vs. 0.5% consensus.
    • CPI in the UK rose 10.1% year over year vs. 9.8% consensus.
    • Core inflation came at 6.2% year over year vs. 5.9% consensus.
    • The Bank of England expects inflation to top out at 13.3% in October.
    • The Bank of England appears to be falling behind the curve and may need to increase its key interest rate to 4%.
    • This is the highest inflation rate in over 40 years.
  • The chart shows that the market experienced steady selling as more traders came to work and understood the implications of the data from the UK.
  • The momo crowd continues to buy the tiny dip.
  • 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 chart shows that the VUD indicator is mostly orange, indicating a net supply of stocks.
  • Retail sales ex-auto were very strong.  This shows that the consumer, in totality, is not slowing down even though the lower income segment is getting hurt.  Here are the details:
    • Retail sales ex-auto came at 0.4% vs. 0.0% consensus.
    • Headline retail sales came at 0.0% vs. 0.0% consensus.
    • Of special note is the furniture and home furnishing store sales rose 0.2% after declining 0.4% in June.  The expectation was that consumers have already bought the furniture they needed during the pandemic and sales would slow.  
  • Fed minutes will be released at 2pm ET.  Smart money will be paying close attention to the minutes to better understand the Fed’s thinking.  Expect the momo crowd to dismiss the Fed minutes as old news, irrespective of what they say.
See also  BUYING OPPORTUNITY IN SOUTH AFRICA, DATA SHOWS ECONOMIC CONTRACTION, BOTH STOCK MARKET BULLS AND BEARS FRUSTRATED WITH THE PRICE ACTION

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 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is experiencing the lowest volatility since October 2020.  Bitcoin 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 $1785, silver futures are at $19.89, and oil futures are $86.89.

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

 futures are down 226 points.

 

THE REACTION TO WALMART EARNINGS SUMS UP THE STATE OF THE STOCK MARKET

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

The State Of The Market

Please click here for a chart of Walmart (WMT)

Note the following:

  • The Morning Capsule is about the big picture and not about an individual stock.  Walmart stock is being used as an example to illustrate the bigger point about the state of the stock market.
  • Early this morning stock futures were down.  Then Walmart reported earnings and stock futures ran up.
  • The chart shows gap downs in Walmart stock when it lowered its projections in May and again about three weeks ago.
  • Note from the chart that prior to the earnings Walmart stock recovered all of the loss from three weeks ago.
  • The chart shows a strong move in the early trade in Walmart stock on release of its earnings.
  • There are a lot of details in Walmart earnings, but the following is the bottom line.
  • What caused the big move up in Walmart stock? Three weeks ago, Walmart stock fell because it lowered FY23 adjusted EPS to decline 10% – 12%.  This morning Walmart said that it expects FY23 earnings to decline 9% – 11%.  
  • Here are the key points:
    • Walmart still expects FY23 earnings to decline 9% – 11%.  This is a significant decline.
    • The momo crowd is aggressively buying Walmart stock and S&P 500 futures because Walmart is projecting its earnings to decline by 1% less than what it projected three week ago.
    • Nobody is asking the question what were the projections before three weeks ago.
    • A rational analysis will show that based on Walmart earnings the state of the economy is not looking good.
    • Walmart is simply playing the age old game that corporations play of lowering the estimate and then slightly increasing it.
    • Why do corporations play this game?  They know that smart money sees through it, but the momo crowd gets excited and buys the stock.  
  • The reaction to Walmart earnings and the games corporations play to run up their stocks sums up the state of the stock market right now.

Housing Starts Weaken

Housing Starts weakened significantly more than expected, but the momo crowd is oblivious.

Here are the details:

  • Housing Starts came at 1.446 million vs. 1.543 million consensus.
  • Building Permits came at 1.674 million vs. 1.674 million consensus.
  • Permits for single family housing starts fell to a two year low.

Industrial Production

Industrial Production came at 0.6% vs. 0.3% consensus.

Capacity Utilized came in line with consensus.

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 🔒 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 🔒.  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.

See also  OPTIMISM ON PPI, WALMART EARNINGS, RETAIL SALES DATA FROM CHINA, AND BUFFETT INVESTMENT

Gold futures are at $1790, silver futures are at $19.93, and oil futures are $89.77.

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

 futures are down 58 points.

 

INVESTORS PAY ATTENTION TO ALARMING DATA FROM CHINA – OIL FALLS ON GLOBAL RECESSION FEARS

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

Alarming New Data

Please click here for a chart of oil ETF (USO).

Note the following:

  • Prudent stock market investors need to pay attention to the alarming data from China.
  • It is perfectly fine to join the momo crowd for short term trades as long as you take the additional step of tight risk controls, but it can be disastrous for the long term investor to join the momo crowd in ignoring the data from overseas.
  • The world is interconnected.  The US stock market is not insulated from developments in China.
  • There is new alarming data from China.
    • July Retail Sales in China fell to 2.7% vs. 5.0% consensus year over year.  This is a significant drop in consumption in China. 
    • Industrial Production came at 3.8% vs. 4.6% consensus year over year.
    • Fixed Asset Investment came at 5.7% vs. 6.2% consensus year over year.
    • House Price Index dropped 0.9% in July vs. 0.0% consensus.
    • New construction starts from January to July fell 46.1%.
    • Property investment from January to July fell 6.4%.
    • Jobless rate for 16 – 24 years old rose to 19.9%.  This is a record.
  • China’s Central Bank is responding by cutting two key lending rates by 10 basis points.
  • The Chinese currency yuan is weakening.
  • In reaction to data from China, oil is falling over 5% and copper is falling over 3%.  There is selling in most other commodities on China data.
  • The chart shows that oil peaked two days before the stock market bottom.
  • The chart of oil shows a downward sloping trend line.
  • The chart of oil shows a significant drop today on China data.
  • Oil supply remains tight, but oil is falling on recession fears.  At the same time, the momo crowd is aggressively buying stocks in the US on the belief that a recession will be avoided.
  • Clearly, either the momo crowd is wrong or the oil market is wrong.
  • William Dudley, the past president of the New York Federal Reserve, is saying that the stock market is misunderstanding the Fed’s inflation response.
  • We have previously shared with you that three Fed officials have come out implying that the stock market is getting it wrong.
  • The momo crowd in the stock market remains undeterred and continues to aggressively buy stocks.  The buying is mostly focused on low quality speculative stocks.
  • Fed minutes will be released on Wednesday and may offer clues as to where the Fed is heading.
  • This week also brings earnings from WMT, TGT, HD, and LOW.  These earnings and projections will also provide important data regarding consumer behavior.  You may recall that previously both  and  were forced to cut their forecasts with special announcements.

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

Gold is falling on stronger dollar.  The dollar is stronger because of the data from China.

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

Over the weekend, bitcoin crossed over $25,000.  However, this morning bitcoin is falling as speculation fever cools on China data.

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 $1792, silver futures are at $20.08, and oil futures are $87.08.

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

 futures are up 193 points.

 

To take a free 30-day trial to paid services to gain access to more opportunities, please click here.

Markets can generate substantial wealth for knowledgeable investors. NOW YOU TOO CAN ALSO SPECTACULARLY SUCCEED AT MEETING YOUR GOALS WITH THE HELP OF THE ARORA REPORT. You are receiving less than 2% of the content from our paid services. …TO RECEIVE REMAINING 98% INCLUDING MANY ATTRACTIVE INVESTMENT OPPORTUNITIES,
TAKE A FREE TRIAL TO PAID SERVICES.

Please click here to take advantage of a FREE 30 day trial.

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.

Subscribe to 'Generate Wealth'

Free Forever

More To Explore

30 Day Free Trial

Cancel within 30 days and you owe nothing

When you take a FREE 30 day trial, you get access to powerful techniques used by billionaires and hedge funds to grow richer. You can continue to use these powerful techniques to grow richer even if you cancel your subscription. You come out ahead by subscribing no matter how you look at it.

Do you want to gain an edge in the markets? Join thousands of your fellow investors and money managers to subscribe to Generate Wealth newsletter.

FREE FOREVER

Follow The Most Accurate Stock Market Analysis

Unrivaled Insights
In Bull and Bear Markets

Generate Wealth Newsletter
Free Forever

Generate Wealth Newsletter
Free Forever