WEEKLY STOCK MARKET DIGEST: MARKET BULLS STAMPEDING AS MISLEADING MOMO GURU 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.’

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

 

HOT JOBS REPORT EXPOSES THE FLAW IN THE NARRATIVE RUNNING UP THE STOCK MARKET

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

Hot 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 that the market has run into the support/resistance zone.  Stock market bulls were gunning to drive the market above the support/resistance zone.
  • The chart shows that after today’s hot jobs report, in the early trade, the market has moved below the low band of the support/resistance zone.  This is a negative.
  • The chart shows that RSI has quickly flipped from a buy signal to a sell signal on the jobs report.
  • The jobs report was hotter than expected.  Here are the details.
    • Nonfarm private payrolls came at 221K vs. 200K consensus.
    • Nonfarm payrolls came at 263K vs. 200K consensus.
    • Average hourly earnings came at 0.6% vs. 0.3% consensus.
    • Unemployment rate came at 3.7% vs. 3.7% consensus.
    • Average work week came at 34.4 vs. 34.5 consensus.
  • We previously wrote:

Since the momo crowd does not do any analysis and simply follows their gurus like sheep, momo gurus’ misleading narrative is taking hold and leading to aggressive buying by the momo crowd.

  • This morning’s data exposes the flaw in the momo gurus’ narrative.
  • Smart money is lightly selling on the jobs report.
  • As the day progresses, expect momo gurus to twist the numbers to come up with a new narrative to run up the stock market.  Will the new narrative take hold?
  • Seasonality is positive.  However, historically most of the December rally takes place in the second half.
  • Investors should pay close attention that there are three critical events ahead.
    • PPI on December 9
    • CPI on December 13
    • FOMC rate decision on December 14
  • Any of the foregoing three events can easily cause a major move in the stock market in either direction.
  • Investors should also pay close attention to oil as the set up is for oil to easily make a significant move in either direction.

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 🔒 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 setup is for oil to easily make a significant move in either direction. 

  • OPEC+ will announce its decision on Sunday.
  • European price cap on Russian oil is scheduled to go into effect on Monday.
    • Please see the Morning Capsule dated November 29, 2022, with the title “MORNING CAPSULE: U.S. ACCUSED OF WAR PROFITEERING, HONG KONG STOCKS UP 5% ON A RUMOR.”
    • The consensus seems to be developing towards a $60 price cap.
    • From our sources, Russian oil in Europe is selling at around $55.
    • Here is the question for investors: How does putting a price cap $5 above the market price punish Russia? The answer is that it does not punish Russia at all.  It simply gives politicians a new fake accomplishment.

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 now below $17,000.

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 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 $1794, silver futures are at $22.52, and oil futures are at $81.17.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.

DJIA futures are down 377 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.

 

FED’S FAVORITE INFLATION GAUGE BETTER THAN EXPECTED, FRONTRUNNING BLIND MONEY

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

Deploy Cash And Reduce Hedges

Consider deploying cash and reducing hedges slowly and on pullbacks. The change is small. Only those who are aggressive, nimble, and understand the CPI data is ahead that may necessitate increasing hedges and reducing cash may consider the change.  Those who are conservative and not nimble may consider not making any change or making a very small change.  Please see the Protection Band and What To Do Now section.

See also  MOMO CROWD BUYING ON POWELL NOT BEING EXTRA HAWKISH AHEAD OF CPI

PCE

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 the market broke above the most recent high on Powell’s comment.  This is a positive.  For details, please see yesterday’s Afternoon Capsule.
  • The chart shows that the stock market has moved up into the support/resistance zone.
  • The chart shows that RSI is on a buy signal.
  • The chart shows that the rally was on heavy volume.  This is a positive.
  • Since the market is now into the resistance zone, a tell will be if there is a follow through to the upside or a pullback today.
  • PCE Prices came at 0.3% vs. 0.4% consensus.  This better than expected inflation data is bringing in more buyers.
  • Core PCE came at 0.2% vs. 0.2% consensus.  This is inline with expectations.
  • The Fed focuses on Core PCE.  Powell confirmed that again yesterday.  However, momo gurus are focused on the headline PCE because that helps them persuade their followers to buy stocks.  If the momo gurus were to focus on Core PCE just like the Fed, they wouldn’t have this argument to buy stocks.
  • Initial jobless claims came at 225K vs 238K consensus.  This is a leading indicator and carries heavy weight in our models.  This indicates that the job market is still stronger than expected.  Powell was very clear yesterday that the Fed needs the labor market to slow, otherwise interest rates are going higher than the current consensus.
  • The data shows that the consumer is very strong.  The U.S. economy is 70% consumer based.  Therefore, prudent investors pay attention to personal income and personal spending data.  
    • Personal income came at 0.7% vs 0.4% consensus. 
    • Personal spending came at 0.8% vs. 0.8%. 
  • At a time when momo gurus are successful in running up the market with their highly flawed narrative, prudent investors should pay attention to two important earnings from the darlings of tech investors released after the market close yesterday.  The earnings are from Salesforce (CRM) and Snowflake (SNOW).  Both companies reported strong earnings, but indicated that the pace of closing future deals has significantly slowed down.  This confirms The Arora Report analysis that Wall Street earnings estimates are too high.  If The Arora Report analysis is correct, after the positive seasonality, momo gurus will run against a wall of declining earnings.  If investors start paying attention to declining earnings, there is a significant downside to the market after the positive seasonality is over.
  • Favoring the momo gurus is that the management of companies are incentivized to report as good of earnings as they can and unfortunately, accounting standards give managements a lot of flexibility to make up earnings.  Prudent investors will need to start focusing on pre-cash flow.
  • Today is the first day of the month.  Blind money flows into the market on the first two days of the month.  Blind money is the money that gets invested irrespective of market conditions and without any analysis.

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 above $17,000.  Whales continue to prop up bitcoin.

Markets

Our very, very short-term early stock market indicator is 🔒 but expect the market to open 🔒.  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 $1808, silver futures are at $22.81, and oil futures are at $82.81.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.

DJIA futures are up 59 points.

 

AHEAD OF POWELL – YIELD CURVE MOST NEGATIVE SINCE 1981, ADP AND GDP SURPRISE

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

Yield Curve

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

Note the following:

  • The chart shows that the yield curve is now more negative.  It is the most negative since 1981. 
  • The classic interpretation of a negative yield curve is an upcoming recession.
  • Stock market bulls are arguing this time is different and there will be no recession.
  • In The Arora Report analysis, there is a 70% probability of a recession in the U.S. if the Fed continues on its present path.  If the Fed changes, this probability will change.
  • In The Arora Report analysis, there is a 90% probability of a recession in Europe.
  • For those who want to deeply understand recession and its impact on the stock market, listen to the podcast titled “Recession: What You Need To Know To Gain An Edge.”
  • ADP is the largest private payroll processor.  ADP uses its data to give an advanced glimpse of employment ahead of the official jobs report.  ADP employment change came at 127K vs. 200K consensus.  This indicates that job growth may finally be beginning to slow down.
  • GDP was stronger than expected.
    • GDP – Second Estimate came at 2.9% vs. 2.7% consensus.
    • GDP Deflator – Second Estimate came at 4.3% vs. 4.1% consensus.
  • JOLTS data on job openings will be released at 10am ET.  JOLTS often moves the markets.  The Fed seems to be paying attention to JOLTS data.
  • Fed’s Beige Book will be released at 2pm ET.
  • The most important event of the day is Powell’s speech at 1:30pm ET at Brookings Institution.  There will be a Q&A.  Historically, Q&A has often moved the markets.
See also  CPI DATA GIVES AMMUNITION TO BOTH BULLS AND BEARS

India

India’s GDP came at 6.3%.  This is still a very fast growth, but the GDP had grown by 8.4% in the same quarter last year. GDP had grown by 13.5% in the previous three months.   GDP was dragged down by mining and manufacturing sectors.

Indian stocks are seeing very aggressive buying both by locals and foreigners.  

Indian stock indexes are at a record high.  

India is the fastest growing major economy in the world.  India has been continuously covered for 15 years in ZYX Emerging.

Helping India is the fact that it is able to buy crude oil from Russia at 40% discount.  

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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

API data showed a draw of 7.85M barrels vs. consensus of a draw of 2.49M barrels.  Oil is jumping on the news.  WTI is trading at $81.25 as of this writing.  Earlier this week it had fallen to the $47 range.

All eyes are on the OPEC+ decision that may be known on Sunday.

The SPR now has the least amount of reserves since 1984.  

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 🔒.  Whales are trying to run up bitcoin in the hopes of differentiating it from other cryptos and persuading retail investors to buy bitcoin.

Markets

Our very, very short-term early stock market indicator is 🔒 and will depend on what Powell says.  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 $1769, silver futures are at $21.90, and oil futures are at $81.25.

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

DJIA futures are up 6 points.

 

U.S. ACCUSED OF WAR PROFITEERING, HONG KONG STOCKS UP 5% ON A RUMOR

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

War Profiteering

Please click here for a chart of oil ETF USO.

Note the following:

  • The chart compares oil ETF  with oil and gas exploration and production ETF XOP.
  • Historically, oil and oil stocks move together.  The chart shows a glaring divergence.  For the period shown on the chart, oil stocks have done 22% better than oil.  
  • Investors should always pay attention to glaring divergences such as the one shown on the chart.  
  • OPEC+ is meeting this Sunday.
  • It appears that Saudi Arabia continues to be aligned with Russia.
  • The European embargo on Russian oil goes into effect on Monday.
  • We have written about this before that Russia is making more money from oil now after sanctions than before the Ukraine war.
    • The way it is working is that Russia ships oil to China.  China marks it up and ships to Europe.  This allows European and U.S. politicians to claim high moral ground of sanctions against Russia while continuing to consume Russian oil.
    • China is profiting from this arrangement.
  • Europe and the U.S. have, in theory, found a way to punish Russia while continuing to gorge on Russian oil.
    • The plan imposes price caps on Russian oil.  Western insurance, finance, and service companies will be banned from financing or insuring oil cargo unless the price of the cargo is at or below the cap.
  • Poland, Estonia, and Lithuania have been uncompromising in that they want the price cap to be at $30 per barrel.
    • As a reference, Brent crude is trading at $84.82 as of this writing.
    • It costs Russia about $20 to produce a barrel.
  • The U.S. is advocating a price cap of about $65 per barrel.
  • Privately, some European officials are accusing the U.S. of war profiteering for advocating for a $65 per barrel price cap.  At $65 per barrel, Russia will be making a profit of $45 per barrel.
  • To add to the chess game, Russia has declared that it will not sell oil to any country imposing price caps.
  • To add to the complexity, there are China opening rumors.  Please see the section below.  China consumes about 15% of the world’s oil.

Order To The Chief Of Propaganda

A rumor from China is creating optimism in markets across the globe including the U.S.

  • Please start out by reading yesterday’s Morning Capsule regarding 30% rally in Hong Kong stocks in two weeks.
  • Hong Kong stocks are up 5.24% today.
  • The rally is triggered by a rumor that China’s President Xi has ordered China’s propaganda chief to implement a new plan.  Yes, it is China and they have a chief of propaganda.
  • To justify zero-COVID policy, the Chinese government has been hammering its citizens with a message that the virus is very dangerous.
  • The problem has been how to open China when most of its citizens believe that the virus is very dangerous.
  • The propaganda plan calls for congratulating the Chinese Communist Party for saving six million lives and will apparently claim that the next variant of the virus is just like the flu and not dangerous.

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

BlockFi has filed for bankruptcy.

Bitfront, a crypto exchange, is shutting down.

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.

See also  WEEKLY STOCK MARKET DIGEST: FED’S FAVORITE INFLATION GAUGE RISES THE LEAST SINCE 2021, ALLIANCE AGAINST CHINA

Interest rates and bonds are range bound.

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 $1765, silver futures are at $21.40, and oil futures are at $78.61.

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

DJIA futures are down 57 points.

 

POTENTIAL CHINA OPPORTUNITY AHEAD, POWELL SPEECH AND JOBS REPORT

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

China Opportunity

Please click here for a chart of China Large-Cap ETF FXI.

Note the following:

  • Protests are erupting all across China against the zero-COVID policy.  Some protestors are calling for the resignation of President Xi.
  • The China Communist Party (CCP) tightly controls the public and such protests against the zero-COVID policy are unprecedented.
  • Nobody should be under the delusion that CCP will not crush the protests by force if they spread.  Remember Tiananmen Square – in 1989 CCP sent the People’s Liberation Army with tanks to fire at protestors in Tiananmen Square in the heart of Beijing, killing thousands.
  • The chart shows that the Hong Kong market bottomed for the short term right after the pressure from foreign money selling lifted.
  • The chart shows when the foreign money exodus from Hong Kong stocks occurred.  Foreign money was exiting China on the prospect of China invading Taiwan.
  • The chart shows a 30% gain in Hong Kong stocks in two weeks on slight easing of COVID restrictions.
  • The large gain occurred on domestic buying.
  • Imagine how big the gain will be if China decides to exit its zero-COVID policy.  Gains of about 60% or higher from the lows in a very short time are probable.
  • In a scenario where protests spread and are crushed, the Chinese stock market will likely go down and provide a buying opportunity.
  • In another scenario, a disorderly exit from the zero-COVID policy may also make the Chinese market go down and provide a buying opportunity.
  • Of course, buying Chinese stocks is not for the faint of heart due to the Taiwan risk.  Keep in mind that there is Taiwan risk in popular stocks such as Apple (AAPL), Tesla (TSLA), NVIDIA (NVDA), Nike (NKE), Starbucks (SBUX).  Many of the popular ETFs are not immune to the Taiwan risk.
  • If there is an opportunity to buy, balancing the risk and rewards, the buy zone will be published in ZYX Emerging.
  • Those interested in this trade may consider listening to the podcast titled “Prudent Investors: Keep A Close Eye On China And Taiwan.”

Powell

Powell will be speaking on Wednesday.  Powell is expected to say that the Fed will likely slow the pace of rate hikes.  Expect momo gurus to start twisting what Powell is likely to say to run up the stock market before Powell’s speech.

Yield Curves

Yield curves keep on steepening.  This is increasing the probability of a recession.  However, Wall Street’s earnings estimates are based on solid economic growth and no recession.

Economic Data

There is significant, market moving, economic data ahead this week.  The most notable is the jobs report on Friday.

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

Oil is seeing selling on China concerns.

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 encouraged that bitcoin held up over the weekend.  Bitcoin is trading over $16,000 as of this writing.

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 $1750, silver futures are at $21.47, and oil futures are at $74.11.

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

DJIA futures are down 227 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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