WEEKLY STOCK MARKET DIGEST: POSITIVE SEASONALITY – HEAVY STOCK BUYING ON HOPE STRATEGY IN SPITE OF MIXED EARNINGS

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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.’

FAST RISING YIELDS PUT PRESSURE ON THE STOCK MARKET, NEW EARNINGS DISAPPOINT

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

Fast Rising Yields

Please click here for a chart of  Snap (SNAP).

Note the following:

  • Yields are rising fast this morning putting pressure on the stock market.
  • There are two reasons for fast rising yields.  The Arora Report members had advance notice of both.
    • The Japanese yen has breached the psychologically important level of 150.  It is now trading at 151.9200 as of this writing in the pre-market.  This is a move of 1.2199%.  For a major currency, this is a very large move. Of note is that the move has happened in spite of threats of intervention by Japan and potentially a behind the scenes intervention.  We previously wrote,

Yen has lost half of its value since its prior peak.  Japan is threatening fresh intervention as yen falls past key 150 level.

Of interest is that both imports and exports hit record levels.

  • There is a delayed reaction to jobless claims.  We previously wrote,

Jobless claims came at 214K vs 233K consensus.  This is a very strong report.

In the morning, futures were down.  As the day progressed, the momo crowd ran up futures with aggressive buying.  Then came the strong jobless claims report throwing cold water on the momo gurus’ narrative that was running up stocks.  Since the jobless claims report, futures have pulled back.

  • Until market close yesterday, momo gurus’ narrative was that earnings were coming out better than expected.  Unlike most pronouncements momo gurus make, momo gurus were right on this one.  In the prior quarter, the momo crowd ran up the stock market 18% when the earnings did not come out as bad as feared.  The rally that started earlier this week was in part predicated on repeat of the bear market rally last quarter when earnings season started.
  • Since the market close yesterday, there are many earnings disappointments.  Here are a few examples:
    • The chart shows a gap down in SNAP.  SNAP stock has lost over 25% of its value after earnings release.  SNAP’s earnings were good, but they have no visibility into the latter half of the fourth quarter.  SNAP is an advertising based business.  One of the first things CEOs cut in a recession is advertising.  The inference from SNAP’s lack of visibility is that CEOs are beginning to cut advertising.  META, GOOG, and PINS are down in sympathy.
    • Hospital chains THC and HCA are significantly lowering their guidance.
    • American Express (AXP) is increasing its loan loss provisions.  Even though the company is issuing positive statements, investors need to ask a question, “Why would AXP increase loan loss provisions if it does not expect more people to stop paying their credit card bills?”
    • SIVB, the famous Silicon Valley bank, is giving a disappointing outlook.
  • Another day, same pattern.  Futures were significantly down this morning, but as time has progressed, momo buying has become very aggressive, especially in tech stocks.  Momo buying has significantly lifted the futures from their lows as of this writing.

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 range bound but below $19,000.

Markets

Our very, very short-term early stock market indicator is 🔒 but can quickly move up if momo 🔒 becomes even more aggressive.  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 $1636, silver futures are at $18.37, and oil futures are at $84.20.

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

DJIA futures are down 32 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.

 

U.S. NAVY CHIEF WARNS OF TAIWAN SEIZURE, THE RISK OF LOW LONG TERM INFLATION EXPECTATIONS

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

Two Important Risks

Please click here for a chart of  the 30-year Treasury yield.

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Note the following:

  • The objective of every investor should be to generate high risk adjusted returns – this is exactly what smart money does.  In contrast, the momo crowd dreams of potential rewards based on hope strategy without taking risks into account.
  • The momo crowd got lucky over the last 40 years because of four mega trends.  Now all four of those mega trends have ended.  As a result, the next 40 years will likely be very different from the last 40 years.  We have been providing you with the right information in small, easily digestible bites to position you correctly.  However, a typical retail as well as institutional investor is positioned and thinking looking backwards in the rearview mirror, oblivious of what is to come.  Due to the very high importance of the four mega trends ending, there will be a live event “A Forward Look At Investing 2023 – 2030.”
  • Due to the four mega trends ending, there are many new opportunities but also many risks. We are addressing two risks in this Morning Capsule.
  • All prudent investors need to be concerned about potential invasion of Taiwan by China.  We recently shared  with you:

We gave you an early warning in yesterday’s Afternoon Capsule.

Now U.S. Secretary of State Antony Blinken is saying that China has made a decision for Taiwan seizure by force on a “much faster timeline”.

  • The latest is from Admiral Mike Gilday, the Chief of Naval Operations.  He said that China could invade Taiwan before 2024.  This is important because the prior time frame from Washington was before 2027.
  • Wall Street and the momo crowd are oblivious to the threat.  This is common.  For example, in January of 2020, we were warning you that the virus would spread to the U.S. and result in a major drop in the stock market.  The momo crowd continued to aggressively buy stocks and ran the market up to a new high in mid-February 2020.  Then in March the stock market experienced a big drop.
  • The second risk comes from a long term expectation for inflation to be very low.  If the economy enters a deep recession, such an assumption may be correct.  However, if there is no recession or the recession is shallow, there is a risk of higher inflation in the range of 3% – 4% over a long time.  The Fed’s target is 2%.
  • The chart shows that the 30 year Treasury yield is 4.166%.  In contrast, April Fed futures are trading at about 5%.  This is the result of low inflation expectations over the long term.
  • The chart shows that the yield has moved significantly above the down sloping trendline.
  • In The Arora Report analysis, the 40 year long bull market in bonds has ended.
  • The chart shows that the yield is very overbought.  Some of our indicators are showing near exhaustion to the upside.  As a result, the yield may pull back in the short term.  However, if inflation numbers do not cool or the Fed pivots too soon, the risk is that the yield of the long bond will rise to the red line shown on the chart.  If this occurs, there will be significant negative consequences for the stock market.  Under such a scenario, there will be many new opportunities to make money.

Jobless Claims

Jobless claims came at 214K vs 233K consensus.  This is a very strong report.

In the morning, futures were down.  As the day progressed, the momo crowd ran up futures with aggressive buying.  Then came the strong jobless claims report throwing cold water on the momo gurus’ narrative that was running up stocks.  Since the jobless claims report, futures have pulled back.

Japan

Yen has lost half of its value since its prior peak.  Japan is threatening fresh intervention as yen falls past key 150 level.

Of interest is that both imports and exports hit record levels.

U. K.

Liz Truss has finally resigned after the biggest blunder made by a leader of a developed country in modern history.  Her resignation does not solve the .K.’s problems.  If politicians in the .S. do not shape up, it is only a matter of time before the U.S. faces similar problems.

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 range bound.

Markets

Our very, very short-term early stock market indicator is 🔒 but can easily swing either way.  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 $1637, silver futures are at $18.52, and oil futures are at $85.81.

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

DJIA futures are up 55 points.

 

BAD NEWS FOR MOMO CROWD FROM EUROPE – INFLATION HITS RECORD

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

Bad News From Europe

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

Note the following:

  • Momo gurus’ narrative to persuade you to buy stocks is that inflation is coming down and the Fed will pivot.
  • The U.S. is not Europe, but the news from Europe is not encouraging.  Here are the details:
    • Eurozone inflation surged to a record 9.9% on an annualized basis.
    • Inflation came at 1.2% month-over-month vs. 1.2% consensus.
    • Core inflation came at 1.0% month-over-month vs. 1.0% consensus.
  • Inflation in the U.K. hit a 40 year high at 10.1%.
  • Yesterday we shared with you that home builder sentiment has crashed.  This morning there is new disappointing data.
    • Housing starts came at 1.439M vs. 1.465M consensus.
    • Building permits came at 1.564M vs. 1.550M consensus.
  • In The Arora Report analysis, many of the new building permits are not likely to lead to actual starts.  
  • Fed’s Beige Book will be released at 2pm ET.   This may be a market moving event.
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China

There are reports that the Chinese military is starting preparations in case an order is given to seize Taiwan.

There are also reports to upgrade the skills of its pilots, the Chinese military is recruiting ex-air force pilots from the .K. and Australia.

As usual, the momo crowd is oblivious.

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

Biden is expected to announce the release of oil from the Strategic Petroleum Reserve.

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 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 $1640, silver futures are at $18.41, and oil futures are at $83.30.

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

DJIA futures are down 161 points.

 

TACTICALLY DEPLOY CASH AND REDUCE HEDGES, CHINA’S TAIWAN SEIZURE ON A “MUCH FASTER TIMELINE”

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

Tactically Deploy Cash And Reduce Hedges

This is a tactical call and not a strategic call.  All investors should take time to understand the difference between tactical and strategic.  Please see the Afternoon Capsule to learn more.

From a strategic point of view, nothing has changed.  The plan still is to start buying strategic positions if the market dips to 3200 – 3250 in S&P 500 or if the Fed shows signs of pivoting or if there is a marked improvement in inflation data.

Cash is being reduced by 4% and hedges by 5%. Please see the section below titled “Protection Bands And What To Do Now” section below.

Any cash deployed should be in tactical positions and not in strategic positions.

Please see yesterday’s Afternoon Capsule for more guidance.

The Chart

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 pattern the chart is tracing is a positive technical pattern.
  • RSI shown on the chart is getting close to giving a buy signal.
  • The chart shows that the first resistance zone is nearby.
  • So far bank earnings are good.  Bank earnings are not a determinant of other earnings that are ahead.  However, investors are extrapolating bank earnings to other earnings that are yet to come.
  • There is also buying coming in ahead of midterm elections.
  • Seasonality turns positive in November.
  • Option expiration appears to be on the buy side.

Seizure Of Taiwan

We gave you an early warning in yesterday’s Afternoon Capsule.  We wrote,

  • There is a report citing U.S. intelligence that the probability of China invading Taiwan has gone up.

Now U.S. Secretary of State Antony Blinken is saying that China has made a decision for Taiwan seizure by force on a “much faster timeline”.

We wrote in yesterday’s Afternoon Capsule,

  • If China invades Taiwan, most business with China will likely stop, just like most business with Russia has stopped.

  • Such an event will be especially bad for today’s popular stocks with substantial presence in China.  Examples include Apple (AAPL), Tesla (TSLA), Nike (NKE), and Starbucks (SBUX).

This is an ominous development and calls for restraint in new strategic investments.  You could wake up one fine morning to find a significant drop in the stock market because China invaded Taiwan.

In The Arora Report analysis, the probability of China invading Taiwan over the next year is about 30% at this time.  Previously, we had given you a probability of 20% because the report was not confirmed.  Now, with Blinken’s confirmation, the probability has gone higher.  The probability goes higher as time progresses.

Investors who are holding stocks with heavy dependence on China should carefully review their positions and make sure their position sizes are in line with what can happen if all business with China stops.

For the time being, the momo crowd is oblivious and aggressively buying stocks.

In The Arora Report analysis, those investors who are using AAPL as a safe haven similar to a money market fund should rethink their strategy.  Investors need to look ahead of the curve and not make decisions looking in the rearview mirror.  

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒 in the early trade.

Gold

In the event of China invading Taiwan, gold may become very valuable. This is a good reason to hold some gold in the portfolio as an insurance policy.

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 Biden administration is considering releasing more oil from the Strategic Petroleum Reserve.  The news is putting pressure on 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 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 up.

See also  WEEKLY STOCK MARKET DIGEST: MOMO CROWD BUYS THE DIP IGNORING DIMON, POOR EARNINGS, AND TESLA TROUBLES

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 $1661, silver futures are at $18.79, and oil futures are at $85.15.

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

DJIA futures are up 548 points.

 

80% RECESSION PROBABILITY, MOMO BUYING ON FED SPECULATION AND SCRAPPING OF TRUSS’S TAX CUTS

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

80% Recession Probability

Please click here for a chart of 10-year minus 2-year Treasuries.

Note the following:

  • The chart shows the yield curve inverted by -0.48%.  This is slightly more than -0.47% in 2000 and -0.43% in 1989.
  • Note from the chart that in 1980 the yield curve inverted by -2.01%.
  • Could the U.S. be heading towards a steeper yield curve inversion?  When the yield curve was more inverted in the 1980’s, it was a period of stagflation.  To learn in advance how to invest during stagflation, listen to the five part podcast series titled “Stagflation: Buffett’s Portfolio.”
  • Based on the yield curve and several other factors that we take into account, the probability of a recession in the U.S. is now 80%.  
  • In The Arora Report analysis, the probability of a recession in Europe is 90%.
  • The momo crowd is aggressively buying stocks on four developments.
    • The dollar is weaker this morning. The momo crowd loves a weak dollar just like they love money printing and free money.
    • In the U.K., Chancellor Hunt is scrapping Truss’s tax cuts and significantly reducing the energy package.  GIlts are rallying.  There is speculation that Truss may not survive as prime minister.
    • There is speculation that the Fed will slow down the pace of rate hikes.
    • Bank of America (BAC) has large consumer deposits and has great insights into consumer behavior.  Bank of America is saying that consumers are flush with cash and continue to spend.
  • In The Arora Report analysis, consumers are still flush with cash because of the leftover free money from government stimulus.  This is not so much the free checks that consumers directly received, but mostly because of trillions of dollars that were injected into the economy during the pandemic.  There is no new free money.  It is only a matter of time until the consumer will stop spending at this rate because more and more people will be concerned about being laid off.  However, this will happen only if the Fed stays on its present course.  If the Fed pivots, the consumer will continue spending and inflation will have difficulty coming down to the Fed’s target of under 2%.
  • While the momo crowd is speculating this morning that the Fed will slow down the pace of rate hikes, St. Louis Fed President James Bullard has suggested that the Fed could consider raising interest rates by 75 basis points in November and then again in December.  Bullard also cautions that it is too early to make the call.  Bullard’s suggestion flies right in the face of the momo crowd’s speculation that is driving up stocks this morning.  
  • This week there are a large number of important earnings.  Bank of America earnings were released this morning.  These earnings are better than expectations.  Other closely watched earnings will be GS, JNJ, TFC, NFLX, ASML, BKR, PG, TRV, WGO, AA, IBM, LRCX, TSLA, T, NUE, WHR, AXP, HCA, SLB, and VZ.

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 seeing buying along with speculative stocks in the early trade, but bitcoin 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.

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 $1669, silver futures are at $18.70, and oil futures are at $85.93.

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

DJIA futures are up 355 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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