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Recession Probability Please click here for a chart of SPDR S&P 500 ETF Trust (ARCA:SPY).
Note the following:
- The chart shows that the stock market has pulled back after touching the low band of the mini resistance zone.
- The chart shows that the stock market is consolidating slightly above the top support zone.
- RSI on the chart shows that the stock market is neither overbought nor oversold and can go in either direction from here.
- Powell’s speech at Jackson Hole was about as expected.
- This AI frenzy driven market was mostly focused on Nvidia earnings. Please see prior capsules. Now that Nvidia earnings are behind, the stock market is focused on momo gurus’ narrative of no recession, the recession probability is zero, and the economy is heading toward no landing.
- As we have been sharing with you, lately the economic data has been very strong. A recession has clearly been postponed for two reasons.
- The consumer has continued to spend aggressively. Consumer savings went up during the pandemic due to free money and other government programs. This led to excessive consumer spending. The consumer has had difficulty changing the habit of excessive spending.
- Lower income households have now run down their savings and are maintaining their spending by borrowing.
- Higher income households own stocks and houses. They continue to spend because they feel richer as the AI frenzy has run up the stock market and house prices have held up due to lack of supply. Since most homeowners with a mortgage have interest rates locked in below 4%, no one wants to sell their house as new mortgage rates are over 7%.
- Excessive government borrowing and spending continues from the Inflation Reduction Act and the Infrastructure Act. Government spending is providing more stimulus to the economy than anticipated.
- The consumer has continued to spend aggressively. Consumer savings went up during the pandemic due to free money and other government programs. This led to excessive consumer spending. The consumer has had difficulty changing the habit of excessive spending.
- Start with Arora’s Second Law of Investing and Trading. The second law states, “Nobody knows with certainty what is going to happen next in the markets.” Follow with Arora’s Third Law of Investing and Trading, which states “Making investing and trading decisions based on probabilities is the only realistic and profitable approach.”
- In The Arora Report analysis, the following are the probabilities going forward:
- Recession 45%
- Soft landing 35%
- No landing 20%
- It is important for investors to keep in mind that the stock market is priced for no landing and zero percent probability of a recession.
- The other important dynamic in the stock market is that a large number of investors now believe that a recession, interest rates, and the Fed do not matter due to investors’ enthusiasm for AI.
- Since so many members have been asking for a podcast on Nvidia and wanting to understand deeply why it dropped in spite of extraordinary blowout earnings, you will be delighted to know that the podcast titled “Understanding Over-Ownership Gives You An Edge – King Nvidia Example“ is in post production and will be published soon. Thank you for your emails requesting an invitation to join Arora Ambassador Club.
- As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the protection band.
China We have been sharing with you that the Chinese government has been trying very hard to prop up its stock market. The Chinese government cut the tax on stock trading for the first time since the great financial crash of 2008. The CSI 300, the main index of Mainland Chinese stocks, jumped 5.5% at first, but then the gains started fading. Investors should take note that everytime the Chinese government tries to prop up the stock market, the stock market first jumps and then gives up most of the gains.
In The Arora Report analysis, the reason the rallies are not sustained is that the economic data in China is weak.
Magnificent Seven Money Flows In the early trade, money flows are positive in Apple Inc (NASDAQ: AAPL), Amazon.com, Inc. (NASDAQ: AMZN), Alphabet Inc Class C (NASDAQ: GOOG), Meta Platforms Inc (NASDAQ: META), Microsoft Corp (NASDAQ: MSFT), NVIDIA Corp (NASDAQ: NVDA), and Tesla Inc (NASDAQ: TSLA).
In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust and Invesco QQQ Trust Series 1 (NASDAQ: QQQ).
Momo Crowd And Smart Money In Stocks The momo crowd is buying stocks in the early trade. Smart money is