By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
The State Of The Market
Please click here for a chart of Walmart (WMT)
Note the following:
- The Morning Capsule is about the big picture and not about an individual stock. Walmart stock is being used as an example to illustrate the bigger point about the state of the stock market.
- Early this morning stock futures were down. Then Walmart reported earnings and stock futures ran up.
- The chart shows gap downs in Walmart stock when it lowered its projections in May and again about three weeks ago.
- Note from the chart that prior to the earnings Walmart stock recovered all of the loss from three weeks ago.
- The chart shows a strong move in the early trade in Walmart stock on release of its earnings.
- There are a lot of details in Walmart earnings, but the following is the bottom line.
- What caused the big move up in Walmart stock? Three weeks ago, Walmart stock fell because it lowered FY23 adjusted EPS to decline 10% – 12%. This morning Walmart said that it expects FY23 earnings to decline 9% – 11%.
- Here are the key points:
- Walmart still expects FY23 earnings to decline 9% – 11%. This is a significant decline.
- The momo crowd is aggressively buying Walmart stock and S&P 500 futures because Walmart is projecting its earnings to decline by 1% less than what it projected three weeks ago.
- Nobody is asking the question what were the projections before three weeks ago.
- A rational analysis will show that based on Walmart earnings the state of the economy is not looking good.
- Walmart is simply playing the age-old game that corporations play of lowering the estimate and then slightly increasing it.
- Why do corporations play this game? They know that smart money sees through it, but the momo crowd gets excited and buys the stock.
- The reaction to Walmart earnings and the games corporations play to run up their stocks sums up the state of the stock market right now.
Housing Starts Weaken
Housing Starts weakened significantly more than expected, but the momo crowd is oblivious.
Here are the details:
- Housing Starts came at 1.446 million vs. 1.543 million consensus.
- Building Permits came at 1.674 million vs. 1.674 million consensus.
- Permits for single-family housing starts fell to a two-year low.
Industrial Production
Industrial Production came at 0.6% vs. 0.3% consensus.
Capacity Utilized came in line with consensus.
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 🔒 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 $1790, silver futures are at $19.93, and oil futures are $89.77.
S&P 500 futures resistance levels are 4318, 4400 and 4460: support levels are 4200, 4000 and 3950.
DJIA futures are down 58 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.
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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 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.
