Buying On Hope But China News

Please click here for a chart of Nvidia (NVDA).

Note the following:

• The Morning Capsule is about the big picture and not about an individual company. The chart of Nvidia is being used to illustrate the bigger point to help you think correctly about this market.

• The momo crowd uses the hope strategy.  Smart money says that hope is not a good strategy.  Based on the hope strategy, the momo crowd buys ahead of the big events hoping the event will go their way.
• The big event is the jobs report tomorrow morning.  The jobs report is also known as the mother of all numbers because of its effect on the markets.  The data will be released tomorrow at 8:30am ET.
• The most important number in the jobs report tomorrow will be non-farm private payrolls.  Please consider distinguishing between non-farm private payrolls and non-farm payrolls.  The consensus for non-farm private payrolls is 280K.
• The momo crowd is buying on hopes of a number lower than 280K.  In plain English, the momo crowd wants a bad economy in the US so that the Fed is forced to stop fighting inflation.
  • In The Arora Report analysis, if the Fed stops fighting inflation, the stock market will run up in the short term but crash in the long term.  Also in our analysis, the Fed is not likely to stop fighting inflation even if the numbers tomorrow go the way of the momo crowd.
• Prudent investors should note that while the momo crowd hopes for a bad economy in the US, they want a good economy in China.  Today, the crowd is dismayed over two pieces of news on China.
• The US is finally becoming serious about the use of advanced American technology by the Chinese military.   
• The US has banned Nvidia from exporting A100 and forthcoming H100 integrated circuits to China and Russia without a license.  In the past, similar US directives had a gaping loophole.  The loophole used to be that exports would be allowed to Hong Kong.  Of course, the technology moved from Hong Kong to mainland China with great ease.
• This time the US has closed the Hong Kong loophole.  
• The restriction will cost Nvidia a loss of about $400M in sales.
• The chart shows a drop in NVDA stock on China news.
• The chart shows that the Arora signal to take profits on tactical positions was given one day after Nvidia topped out in this swing.  With the benefit of hindsight, that was a spot on call.
• At a time when The Arora Report was giving a signal to take profits on tactical positions, many traditional technical analysis gurus as well as momo gurus were urging their followers to buy NVDA because in their view NVDA had formed a great bottom and that was the time to buy.
• Since such buy calls from traditional technical analysis gurus and the opposite call from The Arora Report to sell tactical positions, NVDA stock has dropped about 25%.
• If you have been wanting a good example of a bull trap, it is on vivid display on the chart.
• The other news from China is that Chengdu is locking down 21M people to contain COVID.  Chengdu is in Western China which has in the past been not affected by the virus.
  • This news is hitting oil especially hard.
• The selling this morning on twin China news is being cushioned by Wall Street front running buying ahead of blind money buying this afternoon.  Blind money is the money that flows into Wall Street on the first two days of the month without any analysis and irrespective of market conditions.  This money is typically invested in the afternoon.

Jobless Claims

There is good news on jobless claims to the chagrin of stock market bulls.  Initial jobless claims came at 232K vs. 250K consensus.

Schedule

In observance of Labor Day, our office will close early today and will reopen on Sept 7. There will be no capsules through this period.  Capsules will resume on the morning of Sept. 7.

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

Gold is being sold on stronger dollar. Gold is priced in dollars.  When the dollar goes higher, gold goes down.

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 has fallen below $20,000.

Markets

Our very, very short-term early stock market indicator is 🔒 but could quickly turn 🔒 on blind money buying and momo crowd buying ahead of tomorrow’s jobs report.  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.  Of special note is the 2-year Treasury yield has crossed 3.5% for the first time in this cycle.  

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 $1711, silver futures are at $17.54, and oil futures are $87.92.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.

DJIA futures are down 162 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.

ADP 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:

• 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 🔒 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

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

Bitcoin bulls are encouraged that bitcoin is holding above $20,000.

Markets

Our very, very short-term early stock market indicator is 🔒 but can quickly turn 🔒 after a brief rally.  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.

Now We Know

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 Arora Report analysis has been that the Fed was targeting the stock market.  In our analysis, for the first time in about 20 years the Fed wants the stock market to go lower.
• The Arora Report analysis has been based on connecting the dots.  Our long time readers know that every major call made by The Arora Report on the Fed for the last 15 years has been spot on including where the Fed has been wrong and where the Fed has been right.
• Now we have confirmation that The Arora Report analysis has been spot on.  “I was actually happy to see how Chair Powell’s Jackson Hole speech was received,”  Minneapolis Fed President Neel Kashkari said. “People now understand the seriousness of our commitment to getting inflation back down to 2%.”  In reality, this is as close as a Fed official is likely to come to admit publicly that they want the stock market to go down.
• Kashkari’s statement is very important because for the longest time Kashkari was the biggest dove on the Fed, in that he was the biggest advocate of zero interest rates and money printing.
• Kashkari is a very intelligent person.  He has seen the data, and he is reacting to the data.  He is willing to go from the biggest dove to the biggest hawk.
• In contrast to Kashkari, many otherwise smart gurus are stuck in the recency bias.  For a long time, the Fed was always trying to drive the stock market higher.  These gurus are having difficulty getting unstuck from the old paradigm to the reality.
• The chart shows that the momo crowd buying has brought the market near the low band of the micro resistance zone.
• This morning, momo gurus are urging their followers to aggressively buy stocks because the stock market did not break below 4,000 S&P 500 yesterday.

Consumer Confidence

Consumer Confidence will be released at 10am ET.  Consensus is 97.4.  This number has the potential to be market moving.

Germany

Consumer prices in Germany increased 8.8% year over year.  This is the highest level in 50 years.  Energy prices are up 35.6% year over year, and food prices are up 16.6% year over year.

UK

The Bank of England expects inflation of 13%.  Goldman Sachs (GS) is out saying that inflation may go as high as 22% in 2023.

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 bulls are celebrating that bitcoin did not crash when it went under $20,000.  Bitcoin is now over $20,000.

Markets

Our very, very short-term early stock market indicator is 🔒 but expect the market to open 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 and bonds are range bound.

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 $1742, silver futures are at $18.51, and oil futures are $94.71.

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

DJIA futures are up 69 points.

No Soft Landing

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 volume on a chart can provide you with significant information.
  • Even though the volume was heavier on Friday, it was less than the volume near June lows and earlier in May when many tech stocks bottomed.  This is a negative for the stock market.
  • The chart shows that the selloff in the market was on heavier volume compared to the rallies. This is a negative for the stock market.
  • The chart shows that the volume was nowhere near capitulation volume.  This is a negative.  Please listen to the podcast titled “The Ten Secrets Of Epic Capitulation Riches.”
  • Momo gurus have taken a part of the volume data and twisted it into a reason to buy stocks.
    • Their new narrative is that the down volume on Friday was similar to the down volume on June 13 and June 16, 2022.  The stock market bottomed on June 16, 2022, before a rally.  Momo gurus contend that the stock market has bottomed now because of similarities to June lows and for this reason investors should take advantage of this dip and buy stocks now.
  • Momo gurus’ new narrative to persuade you to buy stocks is highly flawed for three reasons.
    • June 13 and June 16 were after an extended drop in the stock market.  In contrast, August 26 was after a strong extended rally.  What momo gurus are doing is like comparing conditions at the bottom of a mountain to conditions at the top of the mountain. 
    • Technical analysis is great when used properly, but it is not smart to ignore the macro.  Right now, macro conditions do not support buying stocks.
    • It is downright foolish to rely on technicals and ignore Powell’s very hawkish and unambiguous speech.
• The chart shows that the prior micro support zone has now become a micro resistance zone.
• The chart shows that on Friday the stock market closed at the bottom band of the micro resistance zone.
• The chart shows that in the early trade the stock market is below the micro resistance zone.
• There are three very important observations from Powell’s speech that investors should pay special attention to.  
  • The job of the Fed chair in his messaging is to assuage and comfort.  Fed chairs have been doing this successfully in our over 30 years in the markets.
  • Powell has been especially good at assuaging and comforting, but this was not the case in Powell’s last speech.  Powell specifically emphasized “pain” is ahead.
  • In the past, Powell and other Fed chairs almost always mention a soft landing to assuage.  There is no mention of a soft landing in Powell’s last speech.  

2-Year Treasury Yield

Of special note today is that the 2-year Treasury yield hit 3.489% before backing off to 3.421% as of this writing.  At the high, it was a new high, higher than the high in June.

The 10-year minus 2-year yield curve is now more inverted.  This indicates a higher probability of a recession than it was in June – yet the stock market is significantly higher than the June lows.

The yield curve is showing you that this is not a great setup to buy stocks at this time.  Good set ups for buying stocks will come along as they always do – you need to be patient and disciplined.

Meme Crowd

The meme crowd is 🔒 stocks this morning.

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 below $20,000 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 up, and bonds are ticking down.

The dollar is slightly 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 $1751, silver futures are at $18.60, and oil futures are $94.60.

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

DJIA futures are up/down 212 points.