WEEKLY STOCK MARKET DIGEST: QUARTER END WINDOW DRESSING SAVES THE MARKET FROM RISING YIELDS AND RISING DOLLAR

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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.’

 

BETTER INFLATION DATA FROM EUROPE AND U.S. BRINGING BUYERS INTO OVERSOLD STOCK MARKET

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

Better Inflation 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 the stock market has bounced from the bottom band of the top support zone.
  • The chart shows the stock market is at the top band of the top support zone.
  • RSI on the chart shows the stock market is oversold.  As we have been sharing with you, oversold markets tend to bounce.
  • The chart shows that the oversold stock market is bouncing on better inflation data from the U.S. and Europe.
  • PCE is the Fed’s favorite inflation gauge.  The data came slightly better than expected.
    • Headline PCE came at 0.4% vs. 0.4% consensus.
    • Core PCE came at 0.1% vs. 0.2% consensus.
  • In The Arora Report analysis, core PCE is very important; however, core PCE does not include energy and food.  The rising price of oil has a significant impact on lower income consumers.  For this reason, prudent investors should not disregard the rising price of oil, even though that is exactly what the market is choosing to do this morning. 
  • Eurozone inflation has cooled to its lowest point in two years.
    • Eurozone CPI came at 4.3% year-over-year vs. 4.5% consensus.  CPI came at 0.3% month-over-month vs. 0.5% prior.
    • Eurozone core CPI came at 4.5% year-over-year vs. 4.8% consensus.  Core CPI came at 0.2% month-over-month vs. 0.3% prior.
  • The potential government shutdown drama continues in Washington.
  • 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.

Japan

Bank of Japan engaged in unscheduled bond purchases.  The amount was not significant.  However, the operation was designed to send a message to speculators to stop short selling yen.  As we have been sharing with you, moves by the Bank of Japan can have a major impact on the U.S. stock market.  For this reason, it is important for prudent investors to stay in tune with the Bank of Japan.  

China Sends Chills

China is sending chills across multinational corporations.  China is barring a senior executive from the U.S. based firm Kroll from leaving China.  Recently, China also barred a senior executive of Japanese investment bank Nomura from leaving China.

In The Arora Report analysis, the stock market is underestimating the risk emanating from China.

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 positive in S&P 500 ETF SPY and 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 *** oil 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 ***.  First, today is the last day of the quarter, and the last day of the quarter has many cross currents.  Second, today is a Friday, and short squeezes tend to occur on Fridays.  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 $1891, silver futures are at $23.69, and oil futures are at $92.49.

S&P 500 futures are trading at 4365 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 212 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.

 

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

King Dollar

Please click here for a chart of the U.S. Dollar Index Bullish Fund (UUP).

Note the following:

  • The chart shows when The Arora Report’s Morning Capsule headline read “MOMO GURUS PREDICT DEMISE OF DOLLAR BULL RUN, CHINA DATA TEMPERS ENTHUSIASM FOR STOCKS.”
  • Momo gurus were thrilled as the dollar had been falling going into July 17, 2023.  In the morning of July 17, 2023, there was a unanimous chorus that the dollar was about to fall out of bed.  We wrote:

The chorus of momo guru predictions that the dollar bull run has ended is picking up steam again.

  • Momo gurus are always trying to drive the dollar lower.  The reason is that momo gurus’ real job is to run up the stock market in the short term.  We previously wrote:

S&P 500 companies derive significant revenue from overseas. When overseas profits are converted into dollars, the profits go up when the dollar is weaker.  For this reason, a weak dollar helps the stock market go up in the short term.

  • Momo gurus are not concerned about the long term.  In sharp contrast, the mission of The Arora Report is to help members maximize the money they make over their lifetimes.  We previously wrote:

In the long term, a weaker dollar is not good for the U.S.  A strong currency is the hallmark of a strong country.

  • The chart shows the power of Arora support zones and Arora calls.  
    • The chart shows that the Arora call coincides with the low in the dollar.
    • The chart shows that the Arora support zone worked as intended.  
  • The trendline on the chart shows that the dollar has gone straight up since July 17.
  • Prudent investors should note that the dollar has gone up during a period in which China and Russia put in the most intense, unprecedented efforts to drive the dollar lower. 
  • Russia and China are now fully aligned on the objective of China replacing the U.S. as the world’s number one superpower.  China and Russia understand that a big part of the strength of the U.S. is the king dollar.  The U.S. military is strong.  The best way for China and Russia to dethrone the U.S. is to drive the dollar lower.
  • Q2 GDP – Third Estimate came 2.1% vs. 2.1% consensus.
  • Initial jobless claims came at 204K vs. 215K consensus. This is very strong data indicating that the jobs picture is staying strong.
  • Stock futures were down earlier this morning, but the momo crowd bought aggressively ahead of the economic data, as is their pattern.
  • Stock futures dipped when jobless claims came much better than expected.  As of this writing, the momo crowd is aggressively buying the dip.
  • There are two important earnings that have an impact on the entire stock market.
    • The large semiconductor company Micron (MU) guided lower as companies are spending more money on AI chips and not on conventional memory chips.  Micron is working on a high bandwidth memory chip for AI, but it will not be available until 2024. The stock is down 3.8% as of this writing.  We have been sharing with you that a fortune is to be made in artificial intelligence, but it will take expertise.
    • The large used car deal CarMax (KMX) reported that comparable store used unit sales fell 9% year-over-year.  The stock is down 12.2% as of this writing in the premarket, even though this is one of the stocks that is supposed to benefit if the UAW strike prolongs.
  • According to the St. Louis Federal Reserve, credit card delinquency rate in Q2 was 2.8%.  For reference, compare it to 2.6% delinquency rate in the Q4 2019 just before the pandemic hit and 6.8% in Q2 2009 during the great financial crisis.
  • In The Arora Report analysis, the foregoing credit card data is backward looking.  Investors should focus on leading indicators.  Consumers are charging more and getting closer to their credit card limits.  This may lead to higher delinquencies in the future.  This is an important piece of data since the U.S. economy is about 70% consumer based and the recession has been postponed, in part, due to excessive consumer spending. 
  • 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 Meta (META).

In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), 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 

Gold has fallen below $1900 on strong dollar.

The momo crowd is *** gold in the early trade.  Smart money is *** gold in the early trade.

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

Oil

The momo crowd is *** in the early trade after the strong move up yesterday after the EIA data.  Please see yesterday’s Afternoon Capsule for details.  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 ***.  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 $1890, silver futures are at $22.74, and oil futures are at $93.23.

S&P 500 futures are trading at 4307 as of this writing.  S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4200, 4000, and 3950.

DJIA futures are down 17 points.

 

WINDOW DRESSING AND RARE GOOD DATA FROM CHINA BRINGING IN BUYERS IN THE STOCK MARKET

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

Buyers Coming In

Please click here for a chart of Nasdaq 100 ETF (QQQ).

Note the following:

  • The chart shows that the last time QQQ bounced from the mini support zone, the high fell short of the low band of the top resistance zone. This is a negative.
  • Now, QQQ is back to the top band of the mini support zone.
  • RSI on the chart shows QQQ is oversold.  Oversold markets tend to bounce and this is exactly what is happening in the early trade.
  • Today is the last day for most of the window dressing.  This is bringing buyers into the stock market.  For more details, please see prior Capsules.
  • Yesterday, the selling was due to rising yields. This morning, yields are pulling back slightly.  This is lifting the sentiment.
  • In a rare piece of good data from China, Chinese industrial profits came at 17.2% year-over-year vs. a drop of 6.7% in the prior month.  Stocks in Hong Kong jumped 0.8%.
  • China is also injecting liquidity into the market, adding to the positive sentiment.
  • The positive sentiment from China is carrying over to the rest of the globe.
  • Investors are keeping a close eye on the potential shut down of the U.S. government.
  • Durable orders are remaining strong.  However, this is a very volatile series in the first place.
    • Durable orders came at 0.2% vs. -0.2% consensus.
    • Durable goods ex-transportation came at 0.4 vs. 0.3% consensus.
  • Big semiconductor memory maker Micron (MU) will report earnings after the market close.  The earnings and commentary will have read through for other tech stocks.  In full disclosure, there is a Micron position in ZYX Buy in the portfolio that surrounds the Core Model Portfolio.
  • 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.
See also  GROWTH FEARS SEEPING INTO THE STOCK MARKET – NVIDIA’S RUBIN AND RATE CUT HOPE HELP THE STOCK MARKET

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 positive 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 build of 1.586M barrels vs. a consensus of a draw of 1.650M barrels.

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 light buying.

The fraud related to major crypto platform JPEX is now estimated at over $175M with over 2,300 victims.  This is the largest crypto fraud in Hong Kong.

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 $1909, silver futures are at $22.87, and oil futures are at $92.18.

S&P 500 futures are trading at 4330 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 120 points.

 

MARKET MECHANICS TAKING OVER, WINDOW DRESSING MEETS HIGHER RATES

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

Window Dressing

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 stock market has pulled back to the top band of the top support zone.
  • The chart shows that the stock market is tracing a head and shoulders pattern.  This is a negative pattern about 70% of the time.
  • RSI on the chart shows that the stock market is oversold. Oversold markets tend to bounce.
  • There was aggressive buying in stocks going into the close yesterday due to a market mechanic known as window dressing.  In window dressing, many money managers buy the best performing stocks of the quarter and sell the laggards.  In this quarter, it means buying the Magnificent Seven stocks and other artificial intelligence stocks.  We have been receiving requests for a podcast on window dressing.  We have started work on the podcast.  The podcast will be available in Arora Ambassador Club.
  • Market mechanics play a much greater role in market movements than most investors realize. Market mechanics impact both short term traders and long term investors.  As a reference, about two thirds of the stock market rise this year is attributable to market mechanics.  This morning, the market mechanic of window dressing is meeting higher yields.  Higher yields are especially negative for tech stocks.  These are the same tech stocks that money managers are buying in window dressing.  
  • This morning, selling due to higher yields is getting an upper hand over buying due to window dressing.  In The Arora Report analysis, if it was not for window dressing, yesterday and today Nasdaq would have likely been down 2 – 3%. 
  • The consensus in the market is that a government shutdown in Washington will be averted.  However, prudent investors need to stay alert to a potential government shutdown.
  • 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.

China

Property debt situation is getting worse in China.  One of the largest property developers in China, Evergrande Group, failed to make payments on an on-shore bond.  Evergrande’s stock fell about 25%. An ex-CEO and ex-CFO of the company have been arrested by the Chinese government.  These developments are casting a negative shadow on stocks across the globe.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Nvidia (NVDA).

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

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

The momo crowd is *** oil in the early trade.  Smart money is *** in the early trade.

For longer-term, please see oil ratings.

See also  NEGATIVE SENTIMENT FROM FRANCE IMPACTING U.S. STOCKS – WILL AI COME TO THE RESCUE?

Bitcoin

Bitcoin (BTC.USD) 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 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 $1927, silver futures are at $23.21, and oil futures are at $89.13.

S&P 500 futures are trading at 4350  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 down 208 points.

 

SMALL CAPS SIGNAL RECESSION WORRIES, LARGE CAPS HOLD UP ON AI FRENZY

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

Recession Worries

Please click here for a chart of Russell 2000 ETF (IWM).

Note the following:

  • The chart shows that small caps have accelerated to the downside and are now far away from the downward sloping trendline.  This is negative for the stock market.
  • The chart shows that small caps have now broken below the support/resistance zone shown on the chart.  This is negative for the stock market.
  • In contrast to the small caps, large caps are holding up.  Here are the reasons for this discrepancy:
    • Small caps are more impacted by a recession than large caps.
    • Large caps are held up by the AI frenzy.  The AI frenzy is not helping small caps.
  • Small caps are signaling a recession ahead at a time when the momo crowd believes in no landing.
  • In addition to small caps, there are other troubling signals.  The economy has been held up by excessive spending by the consumer.  However, consumer defaults on loans are rapidly increasing, as are bankruptcies.
  • In The Arora Report analysis, the liquidity that the consumer has enjoyed is going to become less and less going forward.  
  • To add to the troubles, the U.S. government shutdown is looming if both parties cannot come to an agreement.
  • UAW is expanding its strike against General Motors (GM) and Stellantis (STLA).  If the strike is prolonged, it will have a negative impact on the stock market.
  • Global trade is falling at the fastest rate since 2020. This has a negative economic impact.
  • Worries about the Chinese property sector are resurfacing causing stocks in Hong Kong to fall 1.8%.
  • On the positive side, there is excitement about Amazon (AMZN) investing $4B in AI startup Anthropic.  Amazon is trying to follow the same play Microsoft (MSFT) made with OpenAI, the creator of ChatGPT.  OpenAI uses Microsoft’s Azure platform.  Anthropic will use Amazon’s AWS cloud platform.
  • Anthropic will also use AI chips from Amazon.  In the early trade, this is having a negative impact on Nvidia (NVDA) and AMD (AMD).  Even though a fortune is to be made in AI over the next seven years, this illustrates that, at times, it will be treacherous.  It is important to completely follow The Arora Report system to minimize risks and maximize returns in AI.  It is especially important to follow the Trade Management Guidelines and not get carried away with enthusiasm about AI.  For those wanting next-level information on investing in AI, there are several podcasts available in Arora Ambassador Club.
  • 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 and Apple (AAPL).

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

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 *** 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) 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 $1945, silver futures are at $23.73, and oil futures are at $89.83.

S&P 500 futures are trading at 4348  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 down 121 points.

 

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Picture of 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.

Picture of 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.

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