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Hotter Inflation Data Please click here for an enlarged chart of SPDR S&P 500 ETF Trust (ARCA:SPY) which represents the benchmark stock market index S&P 500 (SPX).
Note the following:
- The chart shows the stock market is in the resistance zone.
- As is their pattern, the momo crowd was buying ahead of the release of the Producer Price Index (PPI) on hope strategy.
- The momo crowd’s hopes were dashed when PPI data came much hotter than expected. Here are the details:
- Headline PPI came at 0.5% vs. 0.3% consensus.
- Core PPI came at 0.5% vs. 0.2% consensus.
- The chart shows the stock market first dipped on bad inflation data, but as of this writing in the premarket, the momo crowd is aggressively buying the dip.
- Prudent investors, in The Arora Report analysis, would want to wait to see Consumer Price Index (CPI) data tomorrow before taking any action. CPI will be released tomorrow at 8:30am ET.
- The Arora Report previously shared that the Fed’s second blunder has loosened financial conditions way beyond where they should be based on the economic data.
- The Fed’s blunder is now showing up in meme stocks roaring back. Earlier this morning, GameStop Corp (NYSE: GME) was up 163% in the premarket on top of 74% gain yesterday.
- The meme crowd ran up AMC Entertainment Holdings Inc (NYSE: AMC) 156% this morning, trading as high as $13.30 in the premarket. AMC took advantage of the meme crowd to raise about $250M of new capital by selling shares at $3.45. When the company is selling shares at $3.45, why would the meme crowd buy the same shares at $13.30? The answer is the meme crowd is not doing any analysis other than becoming a meme to cause a short squeeze.
- The last meme craze ended in tears for the meme crowd with big losses. As full disclosure, The Arora Report gave a number of successful, short term signals on meme stocks, taking advantage of previous crazes. If the meme craze continues, The Arora Report will return to the same playbook.
- In addition to GME and AMC, here are the stocks the meme crowd is targeting: Plug Power Inc (NASDAQ: PLUG), BlackBerry Ltd (NYSE: BB), Eastman Kodak Co (NYSE: KODK), Lemonade Inc (NYSE: LMND), Novavax Inc (NASDAQ: NVAX), SunPower Corporation (NASDAQ: SPWR), Tupperware Brands Corp (NYSE: TUP), Newegg Commerce Inc (NASDAQ: NEGG), Spirit Airlines Inc (NYSE: SAVE), Hertz Global Holdings Inc (NASDAQ: HTZ), KOSS Corp (NASDAQ: KOSS), Reddit Inc (NYSE: RDDT), VinFast Auto Ltd (NASDAQ: VFS), Rivian Automotive Inc (NASDAQ: RIVN), and C3.ai Inc (NYSE: AI).
- Among earnings, the most notable are earnings from Dow Jones (DJIA) component Home Depot Home Depot Inc (NYSE: HD). Here are the details:
- Home Depot showed its sixth consecutive quarter of negative sales growth.
- Same store sales decreased by 3%.
- Earnings were roughly inline with whisper numbers.
Layoffs Walmart Inc (NYSE: WMT) is laying off hundreds of corporate employees. Walmart is also calling remote workers back to the office.
Magnificent Seven Money Flows In the early trade, money flows are positive in Tesla Inc (NASDAQ: TSLA).
In the early trade, money flows are neutral in Apple Inc (NASDAQ: AAPL).
In the early trade, money flows are negative in Amazon.com, Inc. (NASDAQ: AMZN), Alphabet Inc Class C (NASDAQ: GOOG), Meta Platforms Inc (NASDAQ: META), Microsoft Corp (NASDAQ: MSFT), and NVIDIA Corp (NASDAQ: NVDA).
In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust (ARCA:SPY) and Invesco QQQ Trust Series 1 (NASDAQ: QQQ).
Momo Crowd And Smart Money In Stocks The momo crowd is aggressively buying in the early trade. Smart money is inactive in the early trade.
Gold The momo crowd is buying gold in the early trade. Smart money is inactive in the early trade.
For longer-term, please see gold and silver ratings.
Oil The momo crowd is like a yoyo in oil in the early trade. Smart money is inactive in the early trade.
For longer-term, please see oil ratings.
Bitcoin Bitcoin (CRYPTO: BTC) is range bound.
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 a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. 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 seven 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.
The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.
This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.
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