STOCK MARKET BULLS DISAPPOINTED ON NO RED TSUNAMI – NOW PIN HOPES ON LOWER CPI

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By Nigam Arora & Dr. Natasha Arora

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

Murky Outcome

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:

  • Stock market bulls are disappointed that there is no red tsunami, but they are hanging in tough on hopes of a better than expected CPI tomorrow
  • Republicans will likely control the House by a small margin.  The Senate is still undecided as three key races are too close to call.
  • Here are the expectations for CPI tomorrow.
    • Consensus for CPI is 0.7%.
    • Consensus for Core CPI is 0.5%.
  • Momo gurus are predicting that CPI tomorrow will be better than expected.
  • In The Arora Report analysis, sometimes based on other data, it is possible to say ahead of time if CPI would be better or worse than the consensus.  However, this time it is simply not possible to make such a call with a high degree of confidence.
  • The chart shows that the market is in the support/resistance zone and can easily move either way.
  • The chart shows that RSI is at a point where it can easily move either way.
  • Crypto problems are hurting the sentiment in some corners of the stock market. Please see the “Bitcoin” section below.
    • The reason that crypto is hurting the sentiment in the stock market is because many investors who own a large amount of crypto also own large positions in long duration speculative stocks.
  • META is laying off 11,000 employees.

China – Deflation

At a time when the world is worried about inflation, there is a risk of deflation in China.  Producer Price Index fell 1.3% year-over-year vs. a drop of 1.5% consensus.

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The divergence between China and other countries means that China may gain market share in the global markets.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) in the early trade.  Smart money is 🔒 in the early trade.

Gold

Money is flowing into gold on the crypto debacle.

Gold has broken above $1700.

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 data came at a build of 5.618M barrels vs. consensus of a build of 1.1M 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 has fallen below $18,000.

Crypto bulls have been promoting decentralization as a big advantage of crypto.  If Binance completes its acquisition of international operations of FTX, Binance will control about 80% of the market.   

In yesterday’s Morning Capsule we shared with you that  token had fallen from $22 to as low as under $16.  is now trading at $4.38.  This illustrates the amount of carnage in crypto.

The net worth of  founder Sam Bankman-Fried has fallen in a matter of a couple of days from $16B to under $1B.

Of note is that blue chip VCs were falling over themselves to give $400M to  at an eye popping valuation of $32B in October 2021.   is likely worth less than $1B now.

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.

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Interest rates are ticking up, and bonds are ticking down.

The dollar is 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 $1711, silver futures are at $21.26, and oil futures are at $88.29.

S&P 500 futures resistance levels are 3860, 3950, and 4000: support levels are 3770, 3630, and 3600.

 futures are down 190 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.

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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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