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

Smart Money Sells

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:

• Start out by reading the Interim Capsule.
• The chart shows when Powell delivered his speech.
• The chart shows that the momo crowd initially bought even though the momo crowd was 100% wrong about what Powell would say.
• Powell’s speech was 100% in line with what The Arora Report has been sharing with you as to what the Fed should do.
• The Arora Report call was to buy tactical positions near the lows and the call was to take profits on positions near the high. The call to take tactical profits was made when the stock market was running up like there was no tomorrow and momo crowd gurus were giving higher projections for the stock market. It is too early to tell but the probability is now higher that The Arora Report call to take tactical profits will prove spot on.
• The most recent Arora Report call ahead of Powell’s speech has been to not start any long term positions.  That call has proven spot on.
• The chart shows that smart money started selling as the momo crowd bought near the highs.
• The chart shows when smart money accelerated selling.
• As the day has progressed, momo crowd gurus’ new narrative is to fight the Fed because in their view the Fed is wrong.
  • It is of interest that for the longest time momo gurus preached to not fight the Fed because the Fed was running up the stock market.
  • Most investors do not understand that momo gurus’ job is to persuade their followers to buy stocks and not to provide accurate analysis – this is on full display today.
• As the day has progressed, smart money continues to sell stocks and the momo crowd continues to buy stocks.
• 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 VUD indicator is orange indicating net supply of stocks.

Money Flows

The momo crowd money flows since the Morning Capsule are 🔒 (To see the locked content, please take a 30 day free trial).

Smart money flows since the Morning Capsule are 🔒.

Short squeeze money flows are 🔒.

A Special Note To New Subscribers

Note the smart money behavior.  Smart money tends to sell into strength on strong up days.

New subscribers should consider adopting smart money’s way of investing and trading.

Sentiment

Sentiment is 🔒.

Sentiment is a contrary indicator at extremes.  In plain English, this means that when sentiment becomes extremely positive it is time to sell and when sentiment becomes extremely negative it is time to buy.

Close

There appear to be buy on close orders but that may change.

There is merit to watching the pattern of market on close orders as they represent the day’s dominant net cumulative activity by many professionals and funds.

Gold

The momo crowd money flows in gold are 🔒 since the Morning Capsule.

Smart money flows are 🔒 in gold since the Morning Capsule.

Oil

The momo crowd money flows in oil 🔒 since the Morning Capsule.

Smart money flows in oil are 🔒 since the Morning Capsule.

Buy Zones And Buy Now Ratings

🔒

Wait For Powell

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:

• Investors are eagerly awaiting Powell’s speech.  Powell will speak at 10:00 am ET at Jackson Hole.  For the first time, the speech will be live streamed.
• As we had predicted in yesterday’s Morning Capsule, the chart shows that the momo crowd bought ahead of the speech on hope strategy.
• The chart shows a micro support zone.
• This morning, stock futures were pulling back but significant buying came in on new economic data.  Here is the new economic data:
  • PCE Prices – Core came at 0.1% vs. 0.3% consensus.
  • PCE Prices came at -0.1% vs. +0.1% consensus.
  • Personal Income came at 0.2% vs. 0.6% consensus.
  • Personal Spending came at -0.1% vs. +0.4% consensus.
  • The sum total of the foregoing is that inflation has come down at the same time as both personal income and spending have come down. This adds support for the Fed to not be too aggressive.
• From yesterday’s Afternoon Capsule,

In theory, if Powell is dovish, the magnet for the market on the upside is S&P 500 level of 4400.  If Powell is hawkish, the magnet for the downside is S&P 500 level of 3850 with some support at 4000.  S&P 500 is trading at 4172 as of this writing.

In practice, if Powell is hawkish, expect momo gurus to come up with a narrative to twist what Powell says to make it appear bullish for the stock market to persuade their followers to buy stocks; expect momo crowd to follow by aggressively buying stocks. If smart money sells aggressively, only then the market will go down if Powell is hawkish.

• Please stay alert as there may be a need to take some actions after Powell’s speech.

Breakthrough China Deal

The US and China have reached a breakthrough deal for inspection of audits of Chinese companies listed in the US.

From a post published yesterday in ZYX Emerging,

Breakthrough

After a decade of talks, there appears to be a breakthrough with China on audit inspections.

The US has been threatening to delist Chinese companies.  US requires companies and their auditors to make available financial audits for inspection by the Public Company Accounting and Oversight Board every three years.

There has been an impasse with China because China does not allow foreign regulators to inspect audits of Chinese companies.  China has contended that this policy is to protect state secrets.

Under a potential deal, American regulators would travel to Hong Kong to inspect the audits.

Chinese internet stocks have been rallying on the potential deal.

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 🔒 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 and is beginning to see aggressive buying as of this writing along with speculative stocks.

Markets

Our very, very short-term early stock market indicator is 🔒 because it will depend on what Powell says but expect the market to open significantly 🔒.  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 $1760, silver futures are at $19.20, and oil futures are at $92.83.

S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4000, 3950, and 3860.

DJIA futures are up 143 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.

Hope Strategy

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:

• In yesterday’s Morning Capsule we wrote:

Historically, the momo crowd uses hope strategy and buys ahead of an event on the hope that the event will go their way.  Expect the momo crowd to continue buying stocks going into Powell’s Jackson Hole speech.

• The call has proven spot on in the early trade as momo crowd is aggressively buying stocks ahead of Powell’s speech tomorrow.
• The chart shows that the market is reaching oversold territory in the short term.  This means it is easy for the market to rally from here.
• The chart shows the market has pulled back from its resistance zone and is now consolidating.
• The chart shows the support zone is far away. This indicates that if Powell is hawkish, there is significant room to fall to the downside.
• The sum total of the foregoing is that the technical market setup is such that it can easily go either way depending upon what Powell says.
• A part of the buying stocks in the early trade today is the result of China’s new massive stimulus and better data from Europe.  China will spend $146 billion to support the economy. 
• Student debt relief has become a political football.  We are politically agnostic and our sole job is to help investors and money managers.  In our analysis, it is crystal clear that student debt relief is very positive for the stock market in the short term but negative in the long term.

Jobless Claims

Initial Claims came at 243K vs. 253K consensus. This indicates the employment picture is staying strong.

GDP

Q2 GDP- Second Estimate came at -0.6% vs. -0.9% consensus.

GDP is a backward-looking number.  However, this indicates that the economy is stronger than previously thought.  This should give the Fed more room to be hawkish.

Those who want to understand in more depth about GDP estimates and recession, please listen to the podcast Recession: What You Need To Know To Gain An Edge.

Europe

The data is Europe is somewhat better.  This is causing a rally in European stocks.

• Q2 GDP in Germany came at 0.1% quarter over quarter vs. consensus of 0.0%.
• PPI in Spain came at 40.4% year over year vs. 43% consensus.

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 is range bound.

Markets

Our very, very short-term early stock market indicator is 🔒 but can quickly turn 🔒 on rumors about Powell’s speech.  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 $1772, silver futures are at $19.05, and oil futures are at $95.07.

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

DJIA futures are up 21 points.

Illusion Challenged

Please click here for a chart of Toll Brothers (TOL).

Note the following:

• The Morning Capsule is about the big picture and not about an individual stock.  The chart of Toll Brothers is being used to illustrate the bigger point.
• Toll Brothers is the largest luxury home builder in the US.
• The narrative has been that the affluent are not being affected by the current economic conditions.  Toll Brothers earnings say otherwise.
  • Toll Brothers was supposed to be insulated from current economic conditions because it caters to the affluent.
  • Toll Brothers new orders fell 60% from a year earlier to 1266.
  • Analysts were expecting 2568.
  • New luxury home prices are still not falling.  Toll Brothers is raising the average delivered price per home to $915,000 – $925,000 from $890,000 – $910,000.
• The chart shows that Toll Brothers stock has fallen below the pre pandemic high level.
• On the other end of the income spectrum, one in six households has fallen behind on their utility bills.
• Minneapolis Fed President Neel Kashkari said that the Fed needs to further tighten monetary policy.  Several Fed officials have come out in recent days calling for tighter monetary policy.
• Given the backdrop of both lower income households getting hurt and some affluent households pulling back, stock market bulls are propagating a new narrative.  The new narrative is at Jackson Hole Powell will acknowledge the economy is slowing down and he will talk about slowing down rate increases.
  • If the bulls’ new narrative turns out to be correct, S&P 500 can quickly rally to 4400.  It is trading at 4131 as of this writing.
• The fact is that with the exception of Powell and his inner circle, at this time, nobody knows what Powell will say.  Investors need to be alert to an on purpose leak by Powell ahead of his speech.  Investors should also be prepared for both bullish and bearish scenarios from Powell’s speech.  The bearish scenario is that Powell says exactly what several other Fed officials have recently been saying.  
• Historically, the momo crowd uses hope strategy and buys ahead of an event on the hope that the event will go their way.  Expect the momo crowd to continue buying stocks going into Powell’s Jackson Hole speech.
• July Durable Orders data is mixed.
  • Durable Orders came at 0.0% vs. 0.6% consensus.
  • Durable Orders Ex-Transport came at 0.3% vs. 0.1% consensus.

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is range bound.

Coinbase (COIN) is the largest US crypto exchange.  COIN CEO expects crypto winter to last 12 – 18 months.

Markets

Our very, very short-term early stock market indicator is 🔒, but can easily swing either way based on rumors regarding what Powell will say at Jackson Hole.  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 $1758, silver futures are at $18.91, and oil futures are $93.86.

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

DJIA futures are down 31 points.

Punching A  Hole

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

Note the following:

• The chart shows that oil was dramatically falling when the news from Saudi Arabia hit.
• The chart shows that oil ran up on the news and continues to ramp up.
• 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 VUD indicator is mostly green, indicating a net demand for oil.
• The news is that OPEC+ could cut production at any time.  Here are the key points from Prince Abdulaziz bin Salman:
  • There is a disconnect in oil futures.
  • There is not sufficient liquidity.
  • Spare capacity is very limited.
  • Risk of disruptions remains high.
  • There is a flow of unsubstantiated stories about demand destruction.
• The inference is that the price of oil futures is being manipulated down.
• It is possible to manipulate oil futures prices down, but it would take someone very big with massive resources.  Who could it be that wants lower oil price and has massive resources? 
• There are reports that OPEC+ produced 2.9M bpd below the production target in July.
• The release of crude oil from the US Strategic Petroleum Reserve will end this fall.
• The thesis of the stock market bulls has been that inflation has peaked and the Fed will soon start cutting rates.  Inflation has come down, in large part, due to the price of gas coming down.  The price of gas has come down due to the price of oil falling from a price of $130 to $91.40 as of this writing.
  • If OPEC+ cuts production, the price of oil will likely go back up.  This punches a hole in stock market bulls’ thesis.
• Please click here for a chart showing hunt and destroy algorithms taking out the stops of gullible investors.  This chart was originally published in yesterday’s Afternoon Capsule.  Please read yesterday’s Afternoon Capsule for details.
  • After the stops are taken out, it is common for the stock market to slightly rise.  This is exactly what is happening in the early trade in the stock market.

PMI

IHS Markit Manufacturing PMI as well as services PMI will be released at 9:45am ET.  This data has the potential to move the market.

New Home Sales

New Home Sales data will be released at 10am ET.  The consensus is 580K.

India

Apple (AAPL) plans to start manufacturing the iPhone 14 in India, about two months after the initial release.  Traditionally, iPhones have been manufactured in China.

India and Vietnam are the major beneficiaries of a move to diversify production out of China.  Both India and Vietnam have been continuously covered in ZYX Emerging for over 15 years.

Europe

The euro has fallen below $1.

Eurozone flash August Manufacturing PMI came at 49.7 vs. 49.0 consensus.  Although the number is better than consensus, a number below 50 is considered as economic contraction.

UK’s flash August Manufacturing PMI came at 46.0 vs. 51.0 consensus.

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 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 $1750, silver futures are at $18.73, and oil futures are $91.56.

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

DJIA futures are down 39 points.

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

Jackson Hole

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 market entered the resistance zone and now has pulled back below the resistance zone.
• RSI on the chart shows that the market is losing short term upside momentum.
• The chart shows that volume has remained low during the rally.
• The world’s central banks are gathering at the Jackson Hole symposium.
  • Investors are focused on Jackson Hole with a laser focus on Fed Chair Powell.
  • The backdrop is that momo gurus are doing their best to reinforce the narrative that the Fed is almost done and rate cuts are ahead; Fed officials have been pushing back saying that interest rates need to go higher to bring inflation down to the 2% target.  Momo gurus are countering by vigorously stating that Fed officials do not mean what they are saying.
  • The historic wisdom for investors has been to not fight the Fed.
  • The new wisdom from momo gurus is to fight the Fed.  You may ask what is the reason behind the abrupt switch.  The reason is that for a long time the Fed was pushing the stock market higher.  The momo gurus pushed the wisdom of not fighting the Fed because it helped them to persuade their followers to buy stocks.  Now, the Fed is no longer pushing the market higher but is focused on inflation.  The momo gurus have no choice but to push the new wisdom of fighting the Fed to persuade investors to buy stocks.
  • What Powell says at Jackson Hole along with PCE will be the key to the stock market.
    • The consensus is that Powell will be hawkish and push the message that the Fed needs to fight inflation.
    • The consensus is that momo gurus will respond by saying that the rate hike in September will be the last big rate hike and that is the reason to buy stocks.
• In our analysis, there is a high probability that September will be the last big hike in interest rates.  However, it does not mean that rate hikes will stop.  Rate hikes will likely continue in 25 basis point increments.  
• There is a very high probability that the Fed is not about to start cutting rates.  We have previously written about a lesson from the 1970’s when the Fed’s stop and go policy resulted in persistently high inflation.  It is likely that the Fed has learned its lesson and would want lower inflation to persist over several months before cutting rates.

PCE

PCE has historically been the Fed’s favorite inflation gauge.  However, lately, Powell has been emphasizing CPI.  PCE will be released at 8:30am ET Friday.

• The consensus for the headline is 0.1%.  The prior number was 1.0%.
• The consensus for Core PCE is 0.3%.  The prior number was 0.6%.
• Irrespective of what these numbers are, the probability is very high that they will be significantly less than last month.  Expect momo gurus to use this fact to try to push the stock market higher.

China

The People’s Bank of China (PBOC) has cut the five-year loan prime rate by 15 basis points to 4.30% and one-year loan prime rate by 5 basis points to 3.65%.

Real estate developers in China are in trouble.  China is announcing additional steps to help real estate developers.

South Korea

We have previously written that South Korea is worth watching as it may give an early signal of the state of the global economy.

Exports from South Korea were up 3.9% year over year for the first 20 days of August.

Of special note is that semiconductor exports from South Korea went down 7.5% year over year.  Both Samsung and LG are located in South Korea.

Semiconductors are a leading sector and often lead the stock market in either direction. This data from South Korea  indicates that the demand for semiconductors may be slowing.

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stock in the early trade.  Smart money is selling 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.  WTI oil is trading at $88.87 as of this writing.  You may recall that the momo crowd was 🔒 oil when it was hitting $130; at that time smart money was 🔒 oil and The Arora Report gave a signal to short sell oil.

The momo crowd continued to 🔒 oil until recently. Then the pain of unrealized losses became too big and forced the momo crowd to start 🔒 oil.

The Arora Report in ZYX Short recently gave a signal to book very nice profits on the short oil trade.

Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is stabilizing near $21,000 after pulling back.

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 $1741, silver futures are at $18.62, and oil futures are $88.87.

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

DJIA futures are down 345 points.