By Nigam Arora
To gain an edge, this is what you need to know today.
Weakening Consumer
Please click here for a chart of Walmart stock (WMT).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of WMT stock is being used to illustrate the point. Walmart is the largest U.S. retailer, and thus its earnings provide an important data point about the consumer. The consumer is important because the U.S. economy is about 70% consumer based.
- The chart shows WMT stock has fallen into zone 1 (support) after earnings.
- RSI on the chart shows WMT stock is not yet oversold.
- Walmart missed consensus and whisper numbers on projections. Here are the details:
- Walmart reported Q2 EPS of $0.81 vs. $0.74 consensus.
- Walmart reported Q2 revenue of $187.9B vs. $186.62B consensus.
- Walmart guides Q3 EPS of $0.62 – $0.64 vs. $0.68 consensus.
- As a full disclosure, WMT is in the ZYX Buy Core Model Portfolio long from an average of $19.25. Even after the pullback, WMT is trading at $107.54, representing a gain of 459%.
- In The Arora Report analysis, Walmart earnings reflect a weakening consumer. So far, the consumer has mostly continued to spend. The stock market advance has assumed the consumer will continue to spend. Walmart earnings are providing a contrary data point. This is putting pressure on the entire stock market in the early trade.
- Samsung stock (SSNLF) jumped about 9% in South Korea on speculation that Samsung will start a shareholder return program of about $72B. SK Hynix stock (SKHY) jumped about 12% in South Korea on speculation of more shareholder return programs. The South Korean Kospi Index jumped about 6%.
- Prudent investors should note a divergence this morning. Lately, the U.S. stock market, especially the semiconductor sector, has been following the South Korean market. However this morning, semiconductor stocks in the U.S. are coming under pressure due to rising yields. Even memory stocks Micron (MU) and SanDisk (SNDK) are not following South Korea’s lead.
- Yields are rising this morning as the euphoria from yesterday’s Treasury buyback announcement fades. Please see yesterday’s Morning Capsule for details.
- Also putting pressure on the stock market is rising oil. Oil is rising due to the U.A.E. deciding to suspend economic ties with Iran under U.S. pressure. The U.A.E., China, and Russia have been the three most important economic partners of Iran.
- Initial jobless claims came 206K vs. 206K consensus. This indicates employment is holding up.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Meta (META).
In the early trade, money flows are neutral in Apple (AAPL), Nvidia (NVDA), and Microsoft (MSFT).
In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), and Tesla (TSLA).
In the early trade, money flows are negative in S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQ).
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.
Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary 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.
Gold
The momo crowd is *** in gold in the early trade. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). 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 *** oil in the early trade.
For longer-term, please see oil ratings.
Bitcoin
A vicious short squeeze started in bitcoin (BTC.USD) on yesterday’s Treasury announcement that was discussed in yesterday’s Morning Capsule. The bitcoin short squeeze took another leg up on a positive statement from President Trump.
Markets
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.
S&P 500 futures are trading at 7694 as of this writing. S&P 500 futures resistance levels are 7700, 7900, and 8000 : support levels are 7318, 7194, and 7032.
DJIA futures are down 402 points.
Gold futures are at $4494, silver futures are at $66.69, and oil futures are at $86.81.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora Protection Band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash, Treasury bills, short term fixed income, 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.
A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.
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.
Traditional 60/40 Portfolio
Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.
Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.
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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.
