Classic Gap Down

Please click here for a chart of 20+ year Treasury bond ETF (TLT).

Note the following:

• The chart shows a classic gap down in bonds.  This is negative for stocks.
• The chart shows heavy volume on the gap down. This indicates conviction in selling bonds.
• The chart shows bonds have fallen under the support/resistance zone.  This is negative.
• The chart shows RSI divergence.  From a technical perspective, this signals a potential reversal in bonds.
• Back in 2020, The Arora Report was the first to call that the long bull market in bonds was over and inflation would rise significantly.
• Remember when The Arora Report made a call that the long bull market in bonds was over, the future was not known.  We had no company and the call went squarely against the conventional wisdom as well as the market trend of the last 38 years at that time.  In real life, a call does not get bolder than this.  Now, with the benefit of hindsight of three years since the call, it is crystal clear that the major call on bonds from The Arora Report was spot on.  
• Earlier, the yield on 10-year Treasuries touched 4.5%.  10-year Treasuries are trading at 4.47% as of this writing.
• The 10-year yield is used as a reference rate in determining the fair value of the stock market and also in determining the PE of individual stocks. Rising yields mean a lower fair value of the stock market.  From a valuation perspective, rising yields are especially harmful to the PEs of long duration stocks.  Long duration stocks include tech stocks and speculative stocks.
• For those who want to take their understanding of the impact of rising yields on their portfolio to the next level, listen to the podcast titled “Be Careful With Popular Long Duration Stocks.”  The podcast is available in Arora Ambassador Club.
• In the early trade, the momo crowd is aggressively buying stocks. They are not buying stocks because any analysis shows stock valuations have become attractive.  The momo crowd is simply buying because they have been trained to buy every tiny dip. 
• Also helping the stock market in the early trade is aggressive buying in Apple (AAPL) stock.  AAPL is the largest stock and carries heavy weight in indexes.  AAPL stock is being bought on the launch of the iPhone 15 in retail stores.
• 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.

Bank Of Japan

Bank of Japan left its policy unchanged in line with the consensus.

Dreadful Data From France

The new data from France is dreadful, indicating that economic contraction is accelerating. 

• Flash Manufacturing PMI came at 43.6 vs. 46.0 consensus.  A PMI less than 50 indicates economic contraction.  PMIs are leading indicators and carry 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.
• Flash Services PMI came at 43.9 vs. 46.0 consensus.

Overall in Europe, the data shows economic contraction, but it is not as bad as it is in France.

• Eurozone flash Manufacturing PMI came at 43.4 vs. 44.0 consensus.
• Flash services PMI came at 48.4 vs. 47.7 consensus.

Magnificent Seven Money Flows

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

In the early trade, money flows are mixed in S&P 500 ETF SPY and positive in 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

Bitcoin (BTC.USD) is range bound.

Markets

Our very, very short-term early stock market indicator is ***.  Remember, it is a Friday, and short squeezes often happen on Fridays. If a short squeeze starts, it can take the market significantly 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 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 $1945, silver futures are at $23.92, and oil futures are at $90.50.

S&P 500 futures are trading at 4387 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 up 37 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.

Dot Plot

Please click here for the Fed’s new dot plot.

Note the following:

• We previously shared with you that the most important information ahead was the new dot plot.  That call has proven spot on.  The new dot plot is hitting the stock market with significant selling.
• The dot plot shows each FOMC participants’ projected midpoint of the target for the federal funds.  Each dot represents an FOMC participant.
• The dot plot shows the highest 2024 projection of 6.125% and the lowest projection of 4.375%.
• The median projection for 2024 is now 5.1% vs. 4.6% from the prior dot plot that we previously shared with you. Please click here to see the prior dot plot.
• The dot plot shows the highest projection for 2025 of 5.625% and the lowest projection of 2.625%.
• The message from the dot plot is that interest rates are going to stay higher for longer.  This flies right in the face of projections from momo gurus who have been predicting four rate cuts next year to run up the stock market.
• In The Arora Report analysis, the dot plot shows one to two rate cuts next year. 
• The stock market has been running up as the majority of market participants have bought into the no landing scenario which is even better than the soft landing scenario.  However, Powell is not willing to endorse either the no landing or the soft landing scenario.  From yesterday’s Afternoon Capsule:

Powell says that a soft landing is the primary objective of the Fed.  However, when Powell was prompted to say that a soft landing was a baseline expectation, Powell specifically said that a soft landing is not a baseline expectation.

In plain English, baseline expectation means the most likely scenario.

• The dot plot is in line with The Arora Report projections that have been used in determining the protection band.  For this reason, The Arora Report members are already ahead of the game and no action is needed at this time.
• There is significant uncertainty ahead.  Prudent investors should start with Arora’s Second Law of Investing and Trading, which states “Nobody knows with certainty what is going to happen next in the markets.”  Follow with Arora’s Third Law, which states “Making investing and trading decisions based on probabilities is the only realistic and profitable approach.”  To learn all of Arora’s 30 Laws, please click here.
• In The Arora Report analysis, here are the probabilities:
  • Recession 45%
  • Soft landing 35%
  • No landing 20%
  • It is important for investors to keep in mind that the stock market is priced for no landing and zero percent probability of a recession.
• Initial jobless claims this week are a shocker.  The jobs picture is stronger than expected.  Initial claims came at 201K vs. 225K consensus.  Initial claims 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.
• 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.

England

The Bank of England (BoE) left its rates unchanged.  The decision was five to four.  This indicates tension within the BoE.

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 negative 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 *** 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 $27,000.  It is moving with speculative Nasdaq stocks.

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 $1934, silver futures are at $23.08, and oil futures are at $89.94.

S&P 500 futures are trading at 4411 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 165 points.

A Terrible Milestone Reached

Please click here for a chart of U.S. national debt.

Note the following:

• The chart shows the accelerating trajectory of the U.S. national debt.
• The Treasury Department is informing that for the first time, gross national debt has exceeded $33T.
• The chart shows that about $10T worth of debt has accumulated since the pandemic.
• The national debt is likely to exceed $50T by the end of the decade if nothing substantial is done.
• We are politically agnostic.  Our sole job is to help investors by being objective.
• Many federal programs passed by the Biden administration are costing more than expected.  Here are two examples:
  • The Inflation Reduction Act of 2022 was supposed to cost about $400B over 10 years.  The reality is that it may cost more than $1T.  The government simply underestimated the generosity of energy tax credits in the act.
  • The Employee Retention Credit was supposed to cost about $55B.  It has already cost $230B.  Recently, the IRS froze the program to stop fraud.
• Estimates are that the Federal government will be paying over $10T in interest over the next decade.
• For the first 11 months of the fiscal year, the federal deficit stands at $1.5T, a 61% increase over the same period last year.
• The U.S. national debt equals over $254,000 per taxpayer.
• In addition to the national debt, the government has unfunded liabilities.  These liabilities now total over $193T.  This equates to over $577,000 per U.S. citizen.
• Prudent investors are concerned and are taking into account the rising national debt in their allocation.  
• Momo gurus have convinced the momo crowd that the national debt and unfunded liabilities do not matter.  Momo gurus keep urging their followers to ignore the debt and buy stocks.
• Today is the second day of the Fed meeting.
  • The Fed will announce its rate decision at 2pm ET.
  • Powell’s press conference is at 2:30pm ET.
  • The consensus is no rate hike but a hawkish statement.
• In The Arora Report analysis, the most important item that investors need to pay attention to is the dot plot.  Please click here for a chart of the prior dot plot. For details, please see yesterday’s Morning Capsule.
• The momo crowd is buying stocks in the early trade on hope strategy.
• The narrative from momo gurus is that the stock market will rocket up after the Fed announcement.  Even though momo gurus have been consistently wrong, prudent investors pay attention to momo gurus’ narrative because they have a large following, and the momo crowd is often in control of the stock market in the short term.
• 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 positive 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 *** 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

API crude inventories came at a draw of 5.25M barrels vs. a consensus of a draw of 2.667M barrels

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 (BTC.USD) is seeing buying ahead of the Fed meeting. This is consistent with the historical pattern.

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 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 $1953, silver futures are at $23.58, and oil futures are at $89.56.

S&P 500 futures are trading at 4507  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 up 127 points.

Dot Plot

Please click here for the Fed’s prior dot plot.

Note the following:

• The FOMC meeting is starting today.  Tomorrow, the Fed will announce its decision at 2pm ET followed by Powell’s press conference at 2:30pm ET.
• The dot plot shows each FOMC participants’ projected mid point of the target for the federal funds rate.  Each dot represents an FOMC participant.
• The chart shows that no FOMC participants projected a federal funds rate of less than 5.125% in 2023.
• The chart shows that one FOMC participant projected a federal funds rate above 6% in 2023.
• The chart shows wide dispersion in 2024.  The highest projection is 5.875%.  The lowest projection is 3.625%.
• In The Arora Report analysis, there is enough uncertainty in the economic data that the high end of the projection at 5.875% and the lower end of the projection 3.625% are both possible.  This is why it is important for investors to start from Arora’s Second Law of Investing and Trading.  Arora’s Second Law states, “Nobody knows with certainty what is going to happen next in the markets.”  It is important to not get locked into a bullish or bearish point of view.  Consider flowing with the new data points.  The Morning Capsules are your best source of new data points that matter.  For the most part, you can ignore new data points that are not mentioned in the Morning Capsule.
• The Fed is expected to release a new dot plot tomorrow.
• The most important information from the Fed meeting will be the dot plot.
• The consensus is that the Fed will have a hawkish statement but leave the rate unchanged.
• Regarding the dot plot, momo gurus believe the dot plot will show as many as five interest rate cuts.  This is the reason momo gurus are giving to urge their followers to aggressively buy stocks.  The historical record is clear – momo gurus have consistently been wrong, yet being wrong does not stop momo gurus from making new projections and pretending that they know what the market will do.  Keep in mind that momo gurus’ real job is to run up the stock market under the disguise of analysis.  Nonetheless, it is important to pay attention to what momo gurus are saying because they have legions of followers who do not deeply analyze but instead, blindly buy.
• Prudent investors should note that in contrast to the momo crowd, smart money is not engaging in wholesale buying of stocks at this time.  
• The Arora Report  has consistently called every major Fed move correctly over the last 16 years.
• 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 Starts

Housing starts fell, but building permits went up.  This indicates that high interest rates are beginning to reduce  immediate demand for housing, but builders remain optimistic for the future.  Here are the details:

• Housing starts came at 1.283M vs. 1.435M consensus.
• Building permits came at 1.543M vs. 1.442M consensus.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple (AAPL).  Anecdotal evidence is that orders for iPhone 15 in China are strong.  Yesterday, we shared with you that iPhone 15 preorders in the U.S. appear to be better than expected.

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

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 *** gold in the early trade.  Smart money is *** in the early trade.

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

Oil

Brent crude has hit $95.  Please see yesterday’s Morning Capsule for details on oil.  Here is the chart of oil futures. For the sake of full transparency, this chart is unchanged from what was previously published.

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 staying above $27,000 and seeing buying.

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 $1956, silver futures are at $23.59, and oil futures are at $92.03.

S&P 500 futures are trading at 4492 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 57 points.

Difficult Fight Against Inflation

Please click here for a chart of oil futures that represent West Texas Intermediate (WTI) (CL_F).

Note the following:

• The chart is of West Texas Intermediate crude (WTI).  WTI is the standard for the U.S.  Brent crude is the standard for the rest of the world.  Brent is trading about $3 above WTI.  $100 price for Brent is the magnet for traders.
• The chart shows a steep trendline.
• The main reason for the rise in oil price shown on the chart is that Saudi Arabia, in cooperation with Russia and other OPEC+ members, have successfully reduced the supply.
• The latest government stimulus in China may increase demand for oil in China.  This is adding to the bullishness.
• Resilient U.S. economic data and American consumers’ willingness to spend is adding to the upward pressure on oil.  In the past when gasoline prices rose, consumers would cut back on other discretionary purchases.  However, this time is proving to be different so far.  Rising gas prices are not having a negative impact on other discretionary purchases by American consumers.  The American consumer has become used to excessive spending.  Right now, lower income consumers can still borrow and higher income consumers still have savings.
• Also contributing to higher oil prices is general risk-on sentiment generated by higher stock prices and house prices holding up in spite of higher interest rates.
• The fear is that Saudi Arabia and Russia may want to tighten the screws on the West by trying to run up oil prices to $120 – $130.
• For more guidance, refer to world renown oil ratings from The Arora Report. You can see the oil ratings from the top menu in the Real Time Feeds.  These ratings are based on the following:
  • Geopolitics
  • Sentiment
  • Fund Flows
  • Supply
  • Demand
  • Inventories
  • Positioning
  • Technicals
  • Risk Appetite
  • Economic Indicators
  • Currencies
• FOMC, Bank of England, and Bank of Japan meetings are ahead this week.
• Rising oil prices are making the job of fighting inflation difficult for the Fed and the Bank of England.
• Japan imports almost all of the oil it uses.  Rising oil prices may force the Bank of Japan to change its loose monetary policy.  In The Arora Report analysis, if the Bank of Japan changes its loose monetary policy, it will have a negative impact on stocks in the U.S.  The reason is that there is a lot of money that has been borrowed in Japan at low interest rates and then invested in the U.S. stock market.  
• A concern is also developing about a potential government shutdown.
• On the positive side, early indications are that preorders for iPhone 15 are better than expected.  This is good news because Apple (AAPL) is the largest stock and carries heavy weight in the indexes.
• After the successful IPO of ARM, excitement is building for IPOs of Instacart (CART) and Klaviyo (KVYO).  As a full disclosure, ZYX Buy from The Arora Report has signals on both CART and KVYO.
• Saudi Arabia and Turkey are vying for the next Tesla (TSLA) factory.  Saudi Arabia is sweetening the deal with an offer of rights to purchase particular EV metals.  Elon Musk is also scheduled to meet with the Israeli Prime Minister on Monday.  Musk had previously indicated that the location for the next Tesla factory would be chosen by the end of the year.
• In The Arora Report analysis, Saudi Arabia and other oil rich Middle Eastern countries are using their oil riches to expand into growing areas such as EVs and AI.  We are considering continuous coverage of Saudi Arabia and other Middle Eastern countries in ZYX Emerging by The Arora Report. 
• 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 positive in Apple and Alphabet (GOOG).

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

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) is seeing aggressive buying and is now about $27,000.  The buying is due to speculation that the Fed will not raise interest rates.

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 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 $1945, silver futures are at $23.37, and oil futures are at $91.04.

S&P 500 futures are trading at 4491  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 up 15 points.