WEEKLY STOCK MARKET DIGEST: YIELD CURVE TURNS MORE NEGATIVE BUT “DO NOT BELIEVE FED” NARRATIVE TAKES HOLD

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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.’

YIELD CURVE TURNS MORE NEGATIVE BUT “DO NOT BELIEVE FED” NARRATIVE TAKES HOLD

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

Negative Yield Curves

Please click here for a chart of 10-year Treasury constant maturity minus 2-year Treasury constant maturity.

Note the following:

  • The chart shows the yield curve has turned more negative.
  • The yield curves of other maturities have also turned negative.  Negative yield curves indicate a high probability of a recession.
  • A recession would mean lower earnings than Wall Street consensus.
  • At this time, momo gurus are totally ignoring the impact of recession on earnings as lower earnings may drive the stock market lower.  Instead, momo gurus are promoting the narrative “do not believe the Fed.”
  • The momo crowd is buying stocks as the “do not believe the Fed” narrative takes hold.
  • Positive seasonality is also driving stocks higher.
  • Historically, the stock market is up 75% of the time during Thanksgiving week.
  • There is also optimism on Russia saying that it is open to discussing strategic stability with the U.S.
  • Option expiration is also putting pressure to the upside.
  • Leading Economic Index and Home Sales will be released at 10am ET and may move the market.
  • Based on the data so far, the next dip, if it occurs, maybe a somewhat longer term buying opportunity.  Of course, nothing is cast in stone and investors need to stay nimble.

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 inactive in the early trade.

Gold

The momo crowd is 🔒 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.

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 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 $1763, silver futures are at $21.11, and oil futures are at $79.99.

S&P 500 futures resistance levels are 4000, 4200, and 4318: support levels are 3950, 3860, and 3770.

DJIA futures are up 215 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 good, very long term, 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.

 

TAKE PROFITS ON TACTICAL POSITIONS, RAISE CASH AND HEDGES

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

Take Profits On Tactical Positions

Consider taking profits on tactical positions.  Proceeds should go to cash.  Also, raise hedges.  See the section below titled “Protection Band And What To Do Now.”

The data is changing at warp speed.  As data changes, cash and hedge levels may need to be changed again.

Fed Countering Momo Thesis

Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

See also  WEEKLY STOCK MARKET DIGEST: MARKET BULLS STAMPEDING AS MISLEADING MOMO GURU NARRATIVE TAKES HOLD

Note the following:

  • The chart shows that RSI is on a sell signal.
  • The chart shows that the S&P 500 reached close to the low band of the target zone.  We previously wrote:

The market is getting close to the low band of the profit taking zone of 4100 – 4200 in S&P 500.

  • The present rally in the stock market is continuing to ease financial conditions.  To bring inflation under control, the Fed needs to tighten financial conditions.  Paradoxically, the higher the momo crowd pushes the stock market, the higher the terminal rate will be.
  • Fed officials are doing their best to convey the message; although by tradition, Fed officials do not publicly target the stock market. It is a mistake to think that the Fed is not targeting the stock market just because it is not clearly stated in their statements due to tradition.  This is a good tradition because the Fed does not want to cause panic in the stock market.
  • Kansas City Fed President Esther George says that a “really slowing” labor market as well as economic contraction is needed to bring down inflation. 
  • St. Louis Fed President James Bullard says that the Fed funds rate may have to rise to 5% – 7% to control inflation. 
  • In The Arora Report analysis, Fed officials are being haunted by Burns blunder, and they want to avoid repeating that blunder.  We have previously written about Burns blunder.

Jobless Claims

Initial jobless claims came at 222K vs. 222K consensus. This is a leading indicator and carries heavy weight in the adaptive ZYX Asset Allocation Model with inputs in ten categories.

Housing Starts

Housing starts came at 1.425M vs. 1.420M consensus.

Building permits came at 1.526M vs. 1.518M consensus.

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 🔒 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 $1761, silver futures are at $20.91, and oil futures are at $84.58.

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

DJIA futures are down 330 points.

 

STELLAR RETAIL SALES BUT TARGET EXPOSES THE CRACKS

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

Stellar Retail Sales

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 the market is consolidating below the low band of the upper support/resistance zone.
  • The chart shows that RSI is overbought but the pattern is such that it can go either way.
  • The U.S. economy is about 70% consumer based.  For this reason, prudent investors pay close attention to retail sales.  Retail sales were stellar.  Here are the details:
    • October Retail Sales came at 1.3% vs. 0.9% consensus.
    • Retail Sales ex-auto came at 1.3% vs. 0.6% consensus.
  • In spite of strong sales and strong earnings from Walmart  (WMT) and Home Depot (HD) yesterday as well as Lowe’s (LOW) today, Target (TGT) earnings are exposing cracks in consumer spending.
  • Here are the key points from Target’s earnings:
    • Consumers are pulling back from discretionary purchases.
    • Consumers are showing signs of stress.
    • The sales in the back half of October were even softer than the first half.
    • Earnings were $1.54 vs. $2.18 consensus.
    • The company is guiding lower.
    • Target stock is down 15.6% as of this writing in the pre-market.
  • The difference between strong earnings from Walmart and poor earnings from Target is two fold.
    • Walmart is geared towards the lower end consumer, but Target has higher prices and is geared towards the more affluent consumer.
    • Target is more exposed to discretionary purchases.
  • Industrial Production came at -0.1% vs. 0.0% consensus. Capacity Utilization came at 79.9% vs. 80.3% consensus.
  • Micron (MU), a maker of semiconductor memory, is predicting weakness in memory chips.  

Poland

Markets are breathing a sigh of relief on NATO saying that the missile that hit Poland was likely an air defense missile from Ukraine.

Momo Crowd And Smart Money In Stocks

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

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

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

API reported a draw of 5.835M barrels.  However, oil is falling on the report that the missile that hit Poland was not Russian.

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 under pressure on Genesis, a crypto broker, stopping withdrawals from its lending arm.

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 $1783, silver futures are at $21.75, and oil futures are at $85.41.

S&P 500 futures resistance levels are 4000, 4200, and 4318: support levels are 3950, 3860, and 3770.

DJIA futures are down 67 points.

 

OPTIMISM ON WALMART EARNINGS, RETAIL SALES DATA FROM CHINA, AND BUFFETT INVESTMENT

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

Optimism

Please click here for a chart of Walmart (WMT).

Note the following:

  • There is optimism in the markets due to Walmart (WMT) and Home Depot (HD) earnings, Buffett’s investment in Taiwan Semiconductor (TSM), and retail sales data from China.
  • The purpose of the Morning Capsule is to provide you with the big picture; it is not about an individual stock.  The chart of Walmart is being used to illustrate the state of the consumer as Walmart is the biggest retailer in the world.
  • The chart shows a jump in Walmart stock on earnings.
  • Here are the details of Walmart earnings:
    • Walmart reported earnings of $1.50 adjusted vs. $1.32 consensus.
    • Revenues came at $152.81B vs. $147.75B consensus.
    • As a sad commentary, Walmart also took $3.33B or $1.05 per share in charges for peddling opioids.
    • One of the problems with retailers has been inventory glut.  Walmart did well in the third quarter as inventory was up 13% year-over-year.  This compares with 25% in the second quarter and 32% in the first quarter.
    • Comparable sales in the U.S. rose 8.2% vs. 3.6% consensus.
    • Walmart is guiding comparable U.S. sales excluding fuel to be up 3% vs. 3.5% consensus.
    • Walmart is benefiting from inflation and higher income people who previously did not shop at Walmart now shopping at Walmart to save money.
  • For investors, it is noteworthy that Wall Street ignores charges such as the large charge Walmart took for opioids – this gives public companies a free pass to make mistakes and commit misdeeds and then simply write them off without any consequences to their stock price.
  • Home Depot also reported good earnings.  Here are the details:
    • Earnings of $4.24 vs. $4.12 consensus.
    • Revenues of $38.87B vs. $37.96B consensus.
  • Adding to the optimism is Warren Buffett’s $5 investment in Taiwan Semiconductor.  This indicates that Buffett thinks that Taiwan Semiconductor stock can survive a potential attack by China on Taiwan.
  • In the middle of all of the bullishness, investors should pay attention to credit card data from JPMorgan (JPM) that is showing deterioration. The report shows net credit losses of 1.19% vs. 1.15% last month and 30+ day delinquencies of 0.73% vs. 0.69% last month.
  • The conciliatory tone of the statements by China and the U.S. after the meeting between Biden and Xi is adding to optimism.
  • Online retail sales of physical goods rose 7.2% in the first ten months of the year according to China’s National Bureau of Statistics (CNBS).  CNBS previously reported a sales increase of 6.1% from January to September.  This equates to 15% sales growth in October.
  • Stocks in Hong Kong are up more than 4% on CNBS data.

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 🔒 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 bulls are doubling up, still believing that there are huge gains ahead for bitcoin.

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.

See also  KUO SPOILS MOMO CROWD’S RALLY ATTEMPT AHEAD OF POWELL

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 $1779, silver futures are at $22.04, and oil futures are at $85.24.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 3950, 3860 and 3770.

DJIA futures are up 195 points.

 

INVESTORS LONG THE WRONG GOLD, FED’S WALLER THROWS COLD WATER ON THE STOCK MARKET RALLY

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

The Wrong Gold

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 compares SPY with bitcoin, gold ETF GLD, India ETF EPI, and Hong Kong ETF FXI.  Often, it is helpful to visualize the comparison between different assets.
  • The chart shows that many investors are long the wrong gold – over the last two years money has been flowing out of gold and into bitcoin and other cryptos. Many investors have been calling crypto digital gold.  Many cryptos are now worthless.  Bitcoin is the most stable crypto.
  • The chart shows that real physical gold has gained 7.23% vs. 16.92% loss for digital gold.
  • The chart shows that gold has also outperformed S&P 500 by about 4% this month.
  • Indian stocks are hitting an all time high.  Many investors are now claiming that India is a safe haven and are rushing into India.
  • The chart shows that amid high negativity about China, stocks in Hong Kong are up 16.53% for the month.
  • Over the weekend, Fed governor Christopher Waller threw cold water over the stock market rally.  Waller made the following points:
    • The Fed slowing the pace of rate increases should not be seen as the Fed “softening” to lower inflation.
    • Investors should pay attention to the “end point” and not to the pace of rate increases.
  • More Fed speak is ahead.
  • The meeting between Biden and Xi is generating some optimism in the stock market, helping it recover from Waller’s comments.

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 staging a rally after Binance said that it is working to create a crypto industry recovery fund.

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 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 $1766, silver futures are at $21.70, and oil futures are at $88.13.

S&P 500 futures resistance levels are 4000, 4200, and 4318: support levels are 3950, 3860, and 3770.

DJIA futures are down 58 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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