WEEKLY STOCK MARKET DIGEST: MARKETS ACROSS THE GLOBE ENCOURAGED BY BANK OF ENGLAND FORCING LIZ TRUSS TO MAKE A U-TURN

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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.’

 

MARKETS ACROSS THE GLOBE ENCOURAGED BY BANK OF ENGLAND FORCING LIZ TRUSS TO MAKE A U-TURN

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

Real Hope

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:

  • For the first time in a very long time, there is real hope that there is a path to force governments across the globe to not recklessly borrow and spend.
    • Bank of England Governor Bailey refused to extend the bond buying program to save U.K.’s pension funds.
    • Bailey’s decision left U.K.’s Prime Minister Liz Truss with no choice but to make a U-turn on her plan to recklessly borrow and cut taxes.
    • As a sacrificial lamb, Truss sacks Chancellor Kwarteng.
  • Markets across the globe are encouraged by the events in U.K.
  • Could the Fed force the U.S. Congress and the president to act responsibly down the road, just like Bank of England forced U.K.’s prime minister?
  • The chart shows that the rally yesterday was on heavier volume.
    • The chart shows that prior rallies have not been on heavy volume.
    • In traditional technical analysis, the interpretation is that yesterday’s rally is sustainable because of heavy volume.
    • Expect more buying from those who follow traditional technical analysis.
  • The chart shows that the rally formed an “outside day.”  This is a key reversal pattern and positive for the market.
  • On one hand, the stock market technical picture is now better, but the inflation is worse.
  • In The Arora Report analysis, at this time if you are to pick one, side with the inflation data over the technicals.  The reason is that the positive technicals are the result of the following three flimsy grounds:
    • Momo gurus’ new narrative that worse than expected inflation is positive for stocks because higher inflation means inflation will peak sooner.
    • ECB staff model.  Please see yesterday’s Afternoon Capsule for details.
    • Short squeeze.  In our estimation, about half of the market move yesterday was a short squeeze.
  • There are important earnings from banks including JPM, C, MS, PNC, and WFC. Earnings are mixed.  The earnings have just been released.  We will need more time to dig into them.  Our preliminary read is that MS and C earnings are weaker than expectations but JPM, WFC, and PNC are stronger than expectations.
  • Retail Sales came mixed.  Here are the details:
    • Retail Sales came at 0.0% vs. 0.2% consensus.
    • Retail Sales ex-auto came at 0.1% vs. 0.0% consensus.

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 is seeing buying but is still under $20,000.

Markets

Our very, very short-term early stock market indicator is 🔒, but expect the market to open significantly higher on aggressive momo buying.  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 $1660, silver futures are at $18.61, and oil futures are at $87.13.

S&P 500 futures resistance levels are 3770, 3860 and 3950: support levels are 3630, 3600 and 3520.

DJIA futures are up 314 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.

 

RAISE CASH AND HEDGES – HOTTER CPI, SEMICONDUCTOR EQUIPMENT SALES TO CHINA HALTED

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

Raise Cash And Hedges

Please see the section “Protection Bands And What To Do Now” below.

Be extremely careful as the market is very volatile.  If S&P 500 is below 3550 by the time you are able to act, consider raising cash only in small tranches.  As a reference, S&P 500 had run up to 3644.75 due to aggressive buying by the momo crowd in the minutes leading up to the release of CPI.

It is too volatile to predict and the decisions need to be based on the new data as it comes in.  The tentative plan is to start buying between S&P 500 3200 – 3250.

We previously shared with you that some institutions were heavy buyers of stock around S&P 500 3600.  Expect many institutions to heavily buy stocks around S&P 500 level of 3400.

At the same time be aware that stops of many institutions and hedge funds are right under 3400.  Hunt and destroy algorithms will attempt to take out these stops.  If these stops are taken out, there may be panic selling.  Our plan is to buy into the panic selling if panic selling occurs.  

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Remember that the foregoing is just one of many possible scenarios.

Nothing is cast in stone.  Consider being as nimble as you can and staying very attentive to the Real Time Feeds.

Since a major buying opportunity may be ahead, if you have not already listened to the podcast titled “How To Know When The Stock Market Is A Bargain.” Consider listening to the podcast so that you have a deeper understanding.  

As a further note of caution, expect momo gurus to have a new narrative and call for buying aggressively right here.  If enough investors follow them, there is about 35% probability of a tradable bottom forming in the zone of 3400 – 3450.

Consumer Price Index (CPI)

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:

  • Wall Street has been positioned for CPI to come below expectations.
  • The momo crowd was aggressively buying stocks this morning prior to the release of the CPI number as momo gurus were urging their followers to buy stocks so that they were not left out from the big stock rally that was to ensue after the release of the CPI number.  Of special interest is that the buying became extremely aggressive in the minutes leading to the release of the CPI number.
  • Wall Street and momo gurus have been proven wrong again.  The CPI number is much hotter than expected.  Here are the details:
    • CPI came at 0.4% vs. 0.2% consensus.
    • Core CPI came at 0.6% vs. 0.4% consensus.
  • The chart shows that S&P 500 has dipped into “not mother of support zones.”
  • To give newer members a proper sense of what to expect, the following information is important.  Before the pandemic, The Arora Report was the first one to call a big market drop.  The call was proven to be spot on.   After The Arora Report call, the market kept on running up for about two weeks and made a new high.  Then, the market fell off the cliff to the “‘mother of all support zones” given by The Arora Report.  After the market fell to the “mother of all support zones”, the market staged one of the biggest rallies ever.
  • The foregoing should help investors understand the difference between “mother of support zones” and “not mother of support zones”.
  • Jobless Claims came at 228K  vs. 225K consensus.
  • Semiconductors are the lifeblood of the new economy.  Investors should pay attention to two pieces of news related to semiconductors.  Please see the sections below.

Sales To China Halted

Due to new U.S. export controls, leading semiconductor equipment manufacturers such as AMAT, KLAC, LRCX, and ASML appear to be halting sales to China.

This is going to severely disrupt the Chinese semiconductor industry and ultimately China’s ambition to over take the U.S.

Prudent investors need to keep a watch on how China reacts.  

This situation has significant long term consequences for investors.  There will be many new opportunities as well as pitfalls.  We will be discussing this situation in the live event “A Forward Look At Investing 2023 – 2030.”  

United Kingdom

There are unconfirmed reports that Liz Truss may be forced to do an about face on her plan to borrow and spend more.  It seems to be finally sinking in that the narrative of borrowing and spending more will curb inflation is just plain wrong.

Taiwan Semiconductor

The Morning Capsule is about the big picture and not individual companies.  Taiwan Semiconductor (TSM) is being addressed here because it is the largest contract semiconductor manufacturer in the world.

On the surface, earnings and projections look good – this is prompting the momo crowd to buy the stock in the early trade.  However, looking below the surface there is a lot of bad news.  TSM is planning to cut its capital expenditure by 10% to $36B compared to the budgeted $40B.  TSM expects a sharp inventory correction due to falling sales of PCs and smartphones.

We have previously written extensively about the practice of double ordering in the semiconductor industry.  Companies double ordered during the pandemic and now they have more semiconductors than they need.  The only exception seems to be automotive, but the situation there may quickly change.

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 🔒 oil in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is being sold along with speculative stocks on hotter CPI.

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 $1657, silver futures are at $18.54, and oil futures are at $85.96.

S&P 500 futures resistance levels are 3600, 3630 and 3770: support levels are 3460, 3420 and 3390.

DJIA futures are down 483 points.

 

HOTTER PPI – MOMO GURUS WRONG AGAIN, GILTS DROP AFTER CONFUSION

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

Producer Price Index

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:

  • Momo gurus have been wrong every step of the way, yet their followers continue to invest based on momo gurus’ calls.  Today is no different.
  • Momo gurus were confidently predicting that PPI would be better than expectations, and the stock market would run up.
  • PPI came hotter than expected.  Here are the details:
    • Headline PPI came at 0.4% vs. 0.2% consensus.
    • Core PPI came at 0.3% vs 0.3% consensus.
  • What is the momo crowd doing now as they are sitting on very large unrealized losses?
    • They are buying again on the hope that tomorrow’s CPI number will be better than expected.
    • None of it makes sense but you have to trade the market you get.  Wishing for a rational market is a fool’s errand.   
  • The chart shows that if the market breaks the prior low, the “not mother of support zones” is close by.
  • The chart shows the “DOUBLE BOTTOM?” that the momo gurus are using to persuade their followers to buy stocks.
  • The market needs to penetrate the “not mother of support zones” to at least temporarily nullify momo gurus’ narrative to buy stocks.
  • It will now all come down to the CPI number tomorrow.
  • The earnings season has started.  The Arora Report call is that Wall Street’s earnings estimates are too high.  However, the first two earnings are stellar.
    • Pepsi (PEP) reported stellar earnings.
    • LVMH (LVMUY), the owner of Louis Vuitton and Christian Dior, also reported stellar earnings as the wealthy continue to spend on luxury goods.
  • A while ago, The Arora Report call was that PC sales would slump. To put the call in actionable terms, a signal was given in ZYX Short to short sell the big PC manufacturer  Hewlett Packard (HPQ).  The trade was nicely profitable.  Now the call has proven spot on.  Intel (INTC) is acknowledging a slump in PC sales and is planning to layoff thousands of people.
See also  IPHONE 15 LAUNCH, OPENAI AT $1 BILLION RATE, FOUR NEGATIVE DATA POINTS, INFLATION BACK IN EUROPE

Bank Of England

First Governor Andrew Bailey said that the central bank would end gilt purchases at the end of the week.  Afterwards, the Financial Times said that BOE privately told bankers that it might keep the program going forward.  After the FInancial TImes report, many were questioning the credibility of BOE.  To maintain its credibility, BOE said that gilt purchases will end on Friday.

As a result of the foregoing conclusion, gilts and the pound got whipsawed causing major losses for traders.

In actionable terms, there are short positions in British pound ETF FXB and U.K. equities ETF EWU in ZYX Short.

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 is trading around $19,000 as of this writing.  Bitcoin has held up surprisingly well over the last week. Crypto gurus are using bitcoin holding up as a reason to buy bitcoin.

Markets

Our very, very short-term early stock market indicator is 🔒 but expect the momo crowd to attempt to run up the market on hope strategy ahead of the CPI release.  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 $1677, silver futures are at $19.08, and oil futures are at $88.60.

S&P 500 futures resistance levels are 3630, 3770 and 3860: support levels are 3520, 3460 and 3420.

 

BONDS FALL ACROSS THE GLOBE PUTTING PRESSURE ON STOCKS – MOMO BUYS AGGRESSIVELY

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

Bonds Fall

Please click here for a chart of long bond ETF TLT.

Note the following:

  • The chart is a monthly chart to give you a long term perspective.
  • The chart shows that TLT had fallen below $100 – a key support level.  As of this writing TLT is rebounding.
  • The chart shows that RSI is very oversold.  As of this writing, over the last hour, bonds are beginning to rebound.  After suffering major losses overnight, stocks are also rebounding.
  • The chart shows that TLT had fallen below the low of 2014.
    • We had previously shared with you that the PE ratio of stocks is highly dependent on interest rates.
    • Most investors cannot fathom even the thought of the Dow Jones Industrial Average (DJIA) falling below 16,000.  As of this writing, DJIA futures are trading at 29,181.
    • The chart shows that TLT has fallen to a level that has not been seen since January 2014.  At that time, DJIA was at 15,698.
  • As an important reference, when DJIA was trading at 16,000, most analysts were calling for the stock market to experience a significant drop, some were even calling for a crash.  At that time, The Arora Report was the only one that boldly made a call for DJIA to go to 30,000.  The Arora Report repeated that call several times.  Subsequently, The Arora Report added to the call that 30,000 DJIA would be reached in Trump’s first term. That Arora Report call was proven spot-on just like most of our macro calls.
    • When DJIA reached 30,000, almost all analysts were very bullish.  Some were calling for DJIA to reach 50,000.
    • The Arora Report refrained from making the 50,000 DJIA call.
    • In sharp contrast to most analysts, The Arora Report call has been that the move above DJIA 30,000 was a bubble.  That call has now also proven spot on.
  • It is not only in the U.S., bonds have been falling all across the globe.
  • In the early trade this morning, stocks were coming under significant pressure due to falling bonds and were down more than 1%.  As the morning has progressed, the momo crowd has stepped in to aggressively buy the dip and is running up stocks as of this writing.

Austria

It was not long ago that investors could not get enough 100-year Austrian bonds.  Austrians are known for great fiscal management.  Now, in a short time, Austrian 100-year bonds have fallen 70%.  Similar dislocations are happening elsewhere.  The big losers are pension funds and insurance companies.

England

The pressure on gilts continues.  Inflation-linked gilts have come unlinked.  The situation has forced the Bank of England to broaden its bond purchases.

The Bank of England is also warning of financial stability risk.

The crisis in the U.K. is spilling into the U.S. junk bonds.

Japan

Prime Minister Fumio Kishida is backing the Bank of Japan’s loose monetary policy even after the drop in yen.

Japan is standing alone against the tighter monetary policies across the globe.

In The Arora Report analysis, investors should keep a close eye on falling foreign currency reserves in Japan.  Reserves in Japan are now at $1.24T, the lowest amount since 2017.  If these reserves continue to fall, the Bank of Japan will have difficulty following its loose monetary policy.  If the Bank of Japan stops its loose monetary policy, this will have a major negative impact on financial markets across the globe including the U.S. stock market.

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.

See also  AS CONCERNS ABOUT THE STOCK MARKET IN SEPTEMBER MOUNT, PRUDENT INVESTORS WATCHING SEMICONDUCTORS

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is seeing buying but is still below $20,000.

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 as of this writing.  However, overall bonds have been falling.

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 $1676, silver futures are at $19.36, and oil futures are at $89.26.

S&P 500 futures resistance levels are 3630, 3770 and 3860: support levels are 3600, 3520 and 3460.

DJIA futures are down 11 points.

 

WAIT FOR PPI, CPI AND EARNINGS – MOMO BUYING AHEAD OF THE EVENTS

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

Wait For PPI and CPI

Please click here for a chart of oil ETF USO.

Note the following:

  • Prudent investors are waiting for Producer Price Index (PPI) and Consumer Price Index (CPI) data as well as earnings.
    • PPI will be released on October 12.
    • CPI will be released on October 13.
    • Bank earnings this week include JPM, C, and WFC.
    • TSM is the largest contract semiconductor manufacturer in the world.  Its earnings this week will provide significant insights.
  • In The Arora Report analysis, Wall Street’s earnings estimates are still too high.  
  • Wall Street is expecting inflation to have peaked and CPI as well as PPI to come in lower than the consensus numbers.  If PPI and CPI are lower than the consensus, the momo crowd can easily run up the stock market 5% – 10%.
  • In following their pattern, the momo crowd is again buying stocks leading up to the CPI and PPI release based on hope strategy. Stock futures were lower by over 0.5% in the early morning, but now they have turned positive as of this writing on momo buying.
  • Smart money is inactive because smart money tends to be cautious ahead of such events, as they pose risks.
  • The chart shows that there is a flaw in Wall Street’s analysis.
    • Gasoline prices are a big part of inflation.
    • Gasoline prices lag oil prices.
    • The chart shows that oil prices were falling in September, but they are beginning to rise in October.
  • Even if the momo crowd rallies the stock market because of lower inflation numbers, the chart of oil shows that oil prices are going up in October.  Gasoline prices should follow.  This means that inflation numbers for October and November may go higher.  For this reason, any rally in the stock market may be short lived unless there is other news, such as the Fed backing off.
  • One cross current to remember is that November and December tend to be seasonally strong months.
  • Historically, the market also tends to run up after the midterm election.
  • The chart shows that oil is breaking out from the downtrending trendline.
  • The chart shows when the Arora Buy signal was given to buy USO.  The trade has already hit the first target zone.
  • The chart shows that RSI is overbought.  For this reason, there may be a slight pullback in oil.  But based on OPEC+ production cuts, oil should go higher unless there is other news.

Chinese Semiconductor Stocks Decimated

Chinese semiconductor stocks are getting decimated.  The U.S. has restricted the sale to China of semiconductors that use U.S. technology.  Companies wanting to use U.S. semiconductor technology in Chinese chips must get an export license.

This resulted in $8.6B in market value loss in Chinese chip makers.

Bank Of England

Bank of England (BOE) continues to fight one hand with the other.  With one hand, BOE increased its support for the bond market.  With the other hand, BOE officials say interest rate hikes will continue because inflation must be tamed.

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 is below the psychological resistance of $20,000.

Markets

Our very, very short-term early stock market indicator is 🔒, but expect the market to open higher on momo buying.  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 $16.83, silver futures are at $19.81, and oil futures are at $92.61.

S&P 500 futures resistance levels are 3770, 3860 and 3950: support levels are 3630, 3600 and 3520.

DJIA futures are up 112 points.

 

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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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