Hotter Jobs Report

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 there is buying in the early trade.  The buying in stocks is occurring after the release of the jobs report.
• The jobs report is hotter than expected.  Here are the details:
  • Non-farm private payrolls came at 233K vs. 225K consensus.
  • Non-farm payrolls came at 261K vs. 220K consensus.
  • Unemployment rate came at 3.7% vs. 3.6% consensus.
  • Average work week came at 34.5 vs. 34.5 consensus.
  • Average hourly earnings rose 0.4% vs. 0.3% consensus.
  • The labor force participation rate is 62.2%.
• The jobs report shows that the economy is still robustly creating jobs.  Of concern is that wages are still rising.
• The jobs report shows that Powell was right in his stance.
• In theory, the market should have gone down on the stronger jobs report because it means the Fed is on the right track to keep on raising rates.
• The momo crowd is aggressively buying stocks on the hotter jobs report.  Such buying goes against momo gurus’ own thesis and is nonsensical.  Momo gurus’ thesis behind buying stocks is that the economy is weak and it will cause the Fed to pivot.
• Why is the momo crowd buying?  We have previously shared with you that periodically the momo crowd gets in the mode of buying when there is news, irrespective of the news.  This morning is one of those times.

China

In Hong Kong, stocks jumped 5.4% on reports that inspectors from the U.S. Public Company Accounting Oversight Board have completed their work in China about two weeks ahead of schedule.  There are also rumblings about reopening.  China appears to be reducing penalties for airlines for bringing virus cases to China.

There are also reports that China is thinking of buying mRNA vaccine technology from BNTX.

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 World Gold Council reported gold buying by central banks is the highest it has been since 1967.  Gold is often used as an inflation hedge.  Turkey’s central bank was one of the largest buyers as inflation in Turkey surges to 85%.

Gold prices in the third quarter are down 8% in part because of selling in gold backed ETFs as interest rates and the dollar rise.  Gold is priced in dollars.  When the dollar rises, the price of gold goes down.

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

Oil is running up on news from China.  Please see the China section.

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 holding above $20,000.  Bitcoin is controlled by whales.  The whales are trying to demonstrate that the bottom is in.

Markets

Our very, very short-term early stock market indicator is 🔒 but can quickly turn 🔒.  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 $1665, silver futures are at $20.38, and oil futures are at $92.19.

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

DJIA futures are up 371 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 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 band 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.

Cash And Hedges

Based upon the success Powell had in establishing that momo gurus are wrong, the probability is now higher that the appropriate buy zone for S&P 500 is 3200 – 3250.  As a reference, S&P 500 futures are trading at 3731 as of this writing.

Unless the data changes, the Fed is set to raise rates higher than the Fed’s previous projections.  You may recall that The Arora Report projection has been at 5% for a while, higher than the prior Fed projections.  Now, the Fed is inline with The Arora Report’s projection given to you in advance.

Based on the foregoing, if the momo gurus were not so powerful, the call would have been to increase cash and hedges.  However, as stated in the Afternoon Capsule yesterday, the Fed has now given momo gurus a bone to chew on.  The momo gurus are still going to try to run up the stock market to S&P 500 levels of 4400 – 4500 before the year end.  They are likely to be successful if the data from the next three critical days is supportive of a runup.

Temporarily consider increasing cash and hedges within the protection band.  Please see the “Protection Band And What To Do Now” section below.

Yesterday, signals were given to take profits on tactical positions and the proceeds should go to cash.   

Three Critical Days

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 yesterday the stock market touched the algo selling line, shown in red, and then fell.  This is a negative.
• The chart shows that the stock market is now below the low band of the support/resistance zone.  This is a negative.
• The chart shows that unless there is a rally over the next few days, the bullish inverse head and shoulders pattern will likely be negated.
• The chart shows that RSI is on a sell signal.
• The chart shows that the sell off was on heavier volume.  This is a negative.
• The sum total of the foregoing is that excellent technical positives going into the Fed meeting have now turned negative.
• Previously, we shared with you that there were four critical days ahead.  The Fed day is behind us, but the other three critical days are still ahead.
  • Jobs report on Nov. 4
  • Midterm election on Nov. 8
  • CPI on Nov. 10

Jobless Claims

Jobless claims came at 217K vs. 222K consensus. This is a leading indicator.  It carries heavy weight in the comprehensive, adaptive ZYX Allocation Model with inputs in 10 categories.

Bank Of England

Bank of England (BOE) raised its benchmark interest rate by 75 basis points.

BOE expects the U.K. to fall into the longest ever recession.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 in the early trade.  Smart money is 🔒 in the early trade after selling near the highs yesterday.

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

Remember Bitcoin is controlled by whales.  Bitcoin is holding up above $20,000 because whales are trying to convince investors that bitcoin has bottomed and it is time to buy.

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 very strong.

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 $1623, silver futures are at $18.92, and oil futures are at $88.75.

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

DJIA futures are down 218 points.

Complacency

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 Fed will announce its rate decision at 2pm ET followed by Powell’s press conference at 2:30pm ET.
• The chart shows that from a technical perspective, the market is positioned for a rally.
• Overall, complacency is prevailing among investors.  Typically, negative surprises happen when investors are complacent.
• The momo crowd believes that “heads they win, tails they win.”  The following tweet sums up the momo crowd’s analysis, “If the Fed raises .75 and stays hawkish, market flat on nothing new. If .75 and dovish we rocket. If .50 S&P will be at 4250. Really the risk/reward is in being long.”  The foregoing is not The Arora Report’s opinion but is meant to illustrate momo crowd thinking. 
• ADP is the largest private payroll processor in the country.  ADP uses its data to give an advanced glimpse of the jobs picture ahead of Friday’s jobs report.  ADP Employment Change came at 239K vs. 198K consensus.  This is a very strong number.  There was slight selling in futures on the strong number, but the momo crowd aggressively bought the dip.

Europe

Eurozone Manufacturing PMI came at 46.4 vs. 46.6 consensus.  A number less than 50 indicates economic contraction.

South Korea

We have previously written that South Korea may provide an early indication of what is likely to happen to the world economy.  South Korea’s October CPI came at 0.3% vs. 0.2% consensus.  Inflation is clearly hotter than expected.

China

Yesterday, Chinese stocks ran up on the rumor that China will abandon its zero COVID policy.  Chinese officials are now reiterating the zero COVID policy.

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 🔒 in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

BItcoin is range bound above $20,000.

Markets

Our very, very short-term early stock market indicator is 🔒 and will depend on the Fed.  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 $1659, silver futures are at $19.80, and oil futures are at $88.29.

S&P 500 futures resistance levels are 4000, 4200, and 4318: support levels are 3770, 3630, and 3600.

DJIA futures are down 96 points.

Fed Up Against Momo Gurus

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:

• We have shared with you several times the chart of Dow Jones Industrial Average (DJIA) for the period of 15 years from 1967-1982.  Please click here for the chart.
  • Check out from the chart that DJIA ended January 1976 at 975.  A year later, DJIA was at 954.  Two years later it was at 770.
• Why would we start the Morning Capsule with the foregoing old statistic?  The reason is that the momo crowd is stampeding headlong into the stock market, in part, because momo gurus are convincing them to buy based on DJIA experiencing the best month since January 1976.
  • Why would momo gurus not tell their followers what happened one year and two years after January 1976 when trying to persuade their followers to buy stocks based on the comparison of October 2022 to January 1976?  You already know the answer.  Momo gurus’ sole job is to run up the market, and there is no legal requirement for them to be fully truthful.  Does anybody care about ethics?
  • Why wouldn’t the momo crowd simply look up the chart before putting their money on the line?  This is really the wrong question.  If the momo crowd did even a little bit of due diligence, they would not belong to the momo crowd.
• The chart compares S&P 500 ETF SPY to DJIA ETF DIA and Nasdaq 100 ETF QQQ.
• The chart shows that QQQ was up 1.62% for the month and DIA was up 11.07% for the month.
• Temporarily, non-momo investors are using large cap tech stocks such as Apple (AAPL), Microsoft (MSFT), Google (GOOG, GOOGL), Amazon (AMZN), and Meta (META) as a source of funds and buying stocks such as McDonald’s (MCD), Caterpillar (CAT), and Honeywell (HON).
• We wrote in yesterday’s Morning Capsule:

If any of the four critical days described above produce even the slightest of positive data, momo buying will become extremely aggressive.  For example, it is a matter of common sense that the Fed cannot keep on increasing rates by 75 basis points at every meeting.  The Arora Report call is that the most probable terminal rate is around 5%.  This implies that after a 75 basis point hike in this meeting, the Fed may hike by only 50 basis points in the next FOMC meeting.  Remember the rates will still be going up and they are likely to stay up for awhile and Wall Street’s earnings estimates are too high.  However, imagine what the momo crowd will do if on November 2nd the Fed were to say or imply that in the next meeting the rate hike will be data dependent – a perfectly logical thing to say. Imagine how momo gurus will twist this information and how aggressive momo buying will be.

• The Fed is now in a difficult position as they are up against the momo gurus.  If the Fed is honest and gives a truthful assessment, momo gurus are set up to run up the stock market 10% – 15% from here.  
• To contain inflation, the Fed needs financial conditions to remain tight, but with this momo rally, financial conditions have already loosened.  If the stock market runs up another 10% – 15%, financial conditions will loosen even more, potentially igniting another bout of inflation.  
• Powell is very aware of Burns’s blunder.  Arthur Burns was  Fed chair, under whom inflation was first reduced but then financial conditions eased, igniting another bout of inflation.
• The Fed has a problem because Powell is no match for momo gurus.  On the surface, it seems odd as to how the most powerful central banker in the world would not be a match for the momo gurus. The reason is that Powell has a responsibility to be ethical and truthful, whereas momo gurus do not have those limitations.

What Should Prudent Investors Do?

Prudent investors can hope that Powell will outwit momo gurus, but hope is never a good strategy.  This year momo gurus have run up the stock market leading into most Fed meetings, but then the Fed slapped them hard. This time it is different – before the prior meetings, interest rates were low, now interest rates have already risen and the truth is that at some point the Fed must slow the pace of interest rate hikes.  For this reason, the messaging for Powell is very difficult this time to prevent the momo gurus from running up the market.  

You can wait to see what the Fed says and how the market reacts.  The disadvantage of this approach is that if Powell fails to adequately counter momo gurus, the market will run up before you can blink.  Does this mean you should aggressively buy now?  The disadvantage of this approach is that the market will go down if the Fed is able to successfully counter momo gurus’ narrative.  The only practical solution is to adjust within the protection bands to be more invested based on your personal preference and ability to be nimble after the Fed meeting.

Hong Kong Stocks Soar

The stock market in Hong Kong jumped 5.49% on the dollar pulling back and rumors that China will slowly exit its zero COVID policy.

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 above $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 $1656, silver futures are at $19.92, and oil futures are at $88.93.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.

DJIA futures are up 205 points.

Four Critical Days Ahead

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:

• Here is the important question for prudent investors: Should investors wait or deploy cash now?
• The chart shows the formation of an inverse head and shoulders pattern. This is a bullish pattern.  The Arora Report previously gave you a heads up that this bullish pattern was forming.
• The chart shows the algo selling line in red.  The Arora Report gave you an early warning in advance of potential algo selling.  That call has proven spot on.  We wrote,

The chart shows a red line.  The breach of the level shown by the red line is potentially the point where Wall Street’s algorithms have been programmed to sell stocks.

• The chart shows that after staying below the algo selling line for about a month and a half, the market is approaching the algo selling line from the bottom.
• If this algo selling line is crossed to the upside, expect Wall Street’s algorithms to buy and potentially produce a mirror image of the downside from before. 
• Overall, the technical pattern is positive. 
• Four critical days are ahead.
  • Fed rate decision on November 2
  • Jobs report on November 4
  • Midterm election on November 8
  • CPI data on November 10
• Three of these four critical days have the potential to cause a major move in the stock market in either direction.  As we have been writing, 18 of the last 18 times, the market has gone up after the midterm elections irrespective of who wins.  This time the stock market has moved up, in part, on Republicans gaining in polls in recent days.  However, over the recent years, polls have been notoriously wrong.  If Democrats win, this time the market may not go up.
• If you were to answer the key question above based on the macro, the fundamentals, geopolitics across the globe, and the four mega trends ending, the answer would be clear – wait.  
• We previously wrote,

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.

• We have been receiving a large number of requests from our members to help with in-depth knowledge on hunt and destroy algorithms.  Good news, a podcast titled “Wall Street Secret: Hunt And Destroy Algorithms” has been recorded and is in post production.
• We also previously wrote,

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.

• The foregoing excludes the momo crowd.  Realistically, the momo crowd cannot be excluded because the momo gurus and the momo crowd are a force to be reckoned with.  When it is all said and done, in the short term, the stock market goes up when there is net demand for stocks.  The momo crowd is a big source of demand for stocks right now.  
• The momo crowd is convinced that this is their opportunity to buy as they believe that the stock market is heading towards S&P 500 4500 – 4800.  
• You already know that momo gurus are very skilled at twisting any new development into a reason to buy stocks.
• If any of the four critical days described above produce even the slightest of positive data, momo buying will become extremely aggressive.  For example, it is a matter of common sense that the Fed cannot keep on increasing rates by 75 basis points at every meeting.  The Arora Report call is that the most probable terminal rate is around 5%.  This implies that after a 75 basis point hike in this meeting, the Fed may hike by only 50 basis points in the next FOMC meeting.  Remember the rates will still be going up and they are likely to stay up for awhile and Wall Street’s earnings estimates are too high.  However, imagine what the momo crowd will do if on November 2nd the Fed were to say or imply that in the next meeting the rate hike will be data dependent – a perfectly logical thing to say. Imagine how momo gurus will twist this information and how aggressive momo buying will be. 
• The answer to the important question is clear when the momo crowd is not included in the analysis.  When the momo crowd is included in the analysis, the answer becomes murky for the short term because the momo crowd does not do analysis and momo gurus’ sole job is to run up the stock market.
• To balance the two opposing forces with the macro and fundamental on one side and the momo crowd on the other, protection bands were changed to deploy more cash and reduce hedges last week.  More changes may be made as more data comes in.  In the meanwhile, investors may want to consider adjustment within the protection bands based on their personal preference and the foregoing discussion.
• Two notes of caution:
  • Start with Arora’s Second Law of Investing and Trading, “Nobody knows with certainty what is going to happen next in the stock market.”
  • Run away from anyone who claims they know for sure what is going to happen next.
• As an actionable item, start within the protection bands and Arora’s Third Law of Investing and Trading, “Making investing and trading decisions based on probabilities is the only realistic and profitable approach.”

Meme Crowd

As a result of significant hype over the weekend, the meme crowd is aggressively buying meme stocks in the early trade, such as GME, BBBY, AMC, and KOSS.

Brazil

In Brazil, Lula won over Bolsonaro by a narrow margin.  Lula is a leftist but was very pragmatic and investor friendly during his prior eight years when he led Brazil.  Moreover, Bolsonaro has a significant presence in Brazil’s legislature and none of the left’s radical agenda is likely to pass.

There may be a major opportunity in Brazil if Bolsonaro’s supporters accept the election results.  Brazil is a commodities powerhouse and one of the major untapped opportunities for investors with a long time horizon.  The Arora Report has continuously covered Brazil for the last 15 years in ZYX Emerging.

China

Manufacturing PMI came at 49.2 vs. 50.0 consensus.

Services PMI came at 48.7 vs. 51.9 consensus.

A PMI of less than 50 indicates economic contraction.

These numbers indicate that the Chinese economy is weakening.  Momo gurus in the U.S. are already using this data to come up with a new narrative that this weak data will force PBOC to be more accommodating and in turn influence the Fed in the U.S. to slow down.  

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 light buying and staying above $20,000.

Markets

Our very, very short-term early stock market indicator is 🔒 but can quickly turn 🔒.  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 $1641, silver futures are at $19.06, and oil futures are at $86.55.

S&P 500 futures resistance levels are 3950, 4000, and 4200: support levels are 3860, 3770, and 3630.

DJIA futures are down 152 points.