DOLLAR AND ADP THROW COLD WATER ON BULLISH NARRATIVE, U.A.E. SIDES WITH RUSSIA AGAINST THE U.S.

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By Nigam Arora & Dr. Natasha Arora

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

Dollar And ADP

Please click here for a chart of Bullish Dollar ETF (UUP).

Note the following:

  • In prior capsules, we shared with you several reasons that were coming together to cause the big rally of the last two days.
  • With the benefit of hindsight, it is becoming clear that the biggest reason for the rally in the stock market was the pull back in the dollar.
  • The trendline shown on the chart shows a relentless rise in the dollar.
  • The chart shows that over the last several days, the dollar pulled back.
  • In The Arora Report analysis, pull back in the dollar is bullish for the stock market in the very short term, but it also has a major negative impact that momo gurus are ignoring.
  • Strong dollar has helped contain inflation.  If the dollar was not rising, inflation would be significantly higher.
  • Even though bulls got very excited about the dollar pulling back, the chart shows that the dollar is still significantly above the rising trendline.
  • The chart shows that the dollar is rising again today.  This is causing a downdraft in the stock market.
  • The data from ADP this morning is also throwing cold water over momo gurus’ bullish narrative.
  • In yesterday’s Morning Capsule, we wrote,

Jobs report will be released on Friday. If the employment picture weakens, there is a potential of a 2% – 5% rally in the stock market.  On the other hand, if the employment picture stays strong, the report will throw cold water on the momo gurus’ narrative, and the stock market can fall by a large amount.

  • ADP is the largest private payroll processor in the country.  ADP uses its data to give a glimpse of the jobs picture ahead of Friday’s all important jobs report.
    • ADP employment change came at 208K vs. 198K consensus.
    • Prior ADP number was revised to 185K from 132K.
    • The foregoing data shows that the economy is still creating a lot of new jobs.
  • The Fed is aiming to slow down jobs growth.  Jobs growth needs to slow down to bring down inflation.
  • In yesterday’s Afternoon Capsule, we wrote,

In The Arora Report analysis, this set of data by itself is not going to force the Fed to pivot.  Right now, the market is running up on hope like it has several times this year.  It will take several more weak data points for the Fed to pivot.  For this reason, the jobs report to be released on Friday and inflation reports to be released next week are very important.

  • The data point from today shows strength in the economy.
  • The momo crowd does not like today’s strong data and is selling stocks in the early trade.
  • Fed officials are suggesting that the bar for the Fed to pivot is very high.
  • The Arora Report interpretation of the latest Fed speak is the Fed is implying that the momo gurus are once again misleading their followers about the Fed. 
  • One of the triggers for the big rally was a decision by the Reserve Bank of Australia (RBA) to raise its interest rate by less than the consensus.  Please see yesterday’s Morning Capsule.
  • Today, Australia’s neighbor New Zealand raised interest rates by 50 basis points and said that it had considered a larger increase.  The action by New Zealand’s central bank is erasing some of the positive sentiment created by RBA.
  • See the oil section below for another development that goes against momo gurus’ bullish narrative.
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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

We previously shared with you that Saudi Arabia was siding with Russia against the U.S.  Now there is a report that U.A.E. is also planning to side with Russia against the U.S.  If these reports are true, Russia has gained two important U.S. allies on its side.

If OPEC+ decides to cut oil production by 2M bpd, this will be a negative for the stock market. 

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 over $20,000.

Markets

Our very, very short-term early stock market indicator is 🔒 but expect the momo crowd to start buying on hope strategy ahead of Friday’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.

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.

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Gold futures are at $1719, silver futures are at $20.35, and oil futures are at $87.22.

S&P 500 futures resistance levels are 3860, 3950 and 4000: support levels are 3630, 3600 and 3520.

DJIA futures are down 334 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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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.

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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