By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
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 is consolidated below the micro resistance zone.
- The chart shows that RSI is very oversold. When the market is this oversold, rallies can easily occur.
- The pattern that RSI has traced often leads to a lower market after a quick rally first.
- ADP is the largest private payroll processor in the country. It processes the payroll for 25M employees. ADP uses its data to provide a glimpse of the employment picture ahead of the official jobs report. Here are the key points:
- ADP has revamped its methodology.
- The new methodology has been developed with the Stanford Digital Economy Lab.
- Normally, we publish consensus numbers. However, this time it is uncertain if the consensus numbers are correct because of the revamp.
- ADP employment change came at 132K. Suffice it to say that the number is significantly weaker than expectations.
- ADP says that its numbers should be looked at as an independent number and not a projection of the official number from the Bureau of Labor Statistics that will be released on Friday.
- The numbers that will be released on Friday are also known as mother of all numbers because of their importance to the market.
- Stock market bulls finally got the bad news they have been wanting.
- Their thinking is that the bad news will cause the Fed to not do what the Fed is adamant it will do.
- In The Arora Report analysis, the flaw in the bulls’ argument is that if the economy falls apart, earnings will also fall apart. Lower earnings mean a lower stock market unless there is a PE expansion. The stock market is already expensive on a PE basis even after this pullback. The only way PE expansion will occur is if the momo crowd’s reckless buying is not countered by selling from other groups in the stock market who do responsible analysis.
- Cleveland Fed President Loretta Mester is saying that she does not anticipate a rate cut next year. She said,
In my view, it is far too soon to conclude that inflation has peaked, let alone that it is on a sustainable downward path to 2 percent. First, measures of the underlying inflation trend did not uniformly decline in July. Only the core PCE inflation rate, which excludes food and energy, declined. Measured year-over-year, core CPI inflation and the median and trimmed-mean inflation rates, which exclude the components with extreme movements, were either stable or actually increased.2 Second, in the coming months, goods inflation may slow in response to easing demand and the appreciation of the dollar, but the prices of energy and other commodities are set in global markets, and developments related to the ongoing war in Ukraine may lead to higher prices later this year. Third, inflation in the prices of services tends to be more persistent. Services inflation is at its highest level since the early 1990s, and growth in housing rent and shelter costs, which represent a large share of measured inflation, will likely keep inflation elevated for some time. All of this suggests that it will take a while for inflation to reach the Fed’s 2 percent goal. I expect inflation to move down into a range of 5 to 6 percent for this year and then to make more progress toward our goal over the next two years, but it will require further action on the part of the Fed to make that so.
- Mester’s analysis is very similar to The Arora Report analysis.
- The Arora Report calls about the Fed have proven spot on for every major move in the last 15 years. However, you need to know that in spite of our great track record, the business of forecasting is inherently extremely difficult. There is no guarantee that our call will be correct this time or any time in the future. Always start with Arora’s Second Law: Nobody knows with certainty, what is going to happen next in the markets.
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.
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 saw another big drop in the early trade after a big drop yesterday for four reasons.
- OPEC+ is increasing its oil market surplus forecast by 100K bpd.
- There is selling in oil due to fears of recessions in Europe and the US.
- There are new lockdowns in China causing fears of lower demand.
- There are many new reports that a deal with Iran is near.
API inventory data came at a build of 593K bpd vs. a consensus of a draw of 633K bpd.
The momo crowd has 🔒 and getting whipsawed in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin bulls are encouraged that bitcoin is holding above $20,000.
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 $1722, silver futures are at $17.92, and oil futures are $89.24.
S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 3950, 3860 and 3700.
DJIA futures are up 98 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.
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