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The Folly Of Investor Celebration Please click here for a chart of iShares 20 Plus Year Treasury Bond ETF (NASDAQ: TLT).
Note the following:
- The chart shows when The Arora Report predicted that a record supply of Treasuries was ahead. A record supply meant higher yields and lower bond prices.
- With the benefit of hindsight, The Arora Report prediction has proven spot on.
- The chart shows that since the Arora call, there has been a significant drop in bond prices.
- The chart shows that bonds are consolidating significantly below the lower resistance zone.
- We shared with you in yesterday’s Afternoon Capsule:
The announcement from the U.S. Treasury is adding to the buying pressure in stocks. Here are the details of the Treasury announcement:
- From October to December, the Treasury will borrow $776B. In The Arora Report analysis, this amount is $76B less than the consensus.
- From January to March, the Treasury will borrow $816B.
- That is $1.592T of borrowing over six months. Investors are celebrating by buying stocks. What is wrong with this picture? Celebrating this level of borrowing is a folly.
- The second part of the Treasury announcement is still ahead. In the Treasury’s issuance announcement, the Treasury will provide details of the duration of the notes and bonds it will be selling.
- Details of the issuance have the potential to move the yields, and in return bonds, by a large amount. If more issuance is of long duration, long term yields will rise. If most of the issuance is in the short term, the impact is uncertain.
- In The Arora Report analysis, the Treasury issuance statement is of utmost importance to stock investors. If yields rise further on long term bonds, this will be a negative for the stock market. On the other hand, if yields fall, it will be a positive for the stock market.
- The FOMC meeting starts today. The FOMC decision will be announced at 2:00pm ET tomorrow followed by Powell’s press conference at 2:30 pm ET.
- In The Arora Report analysis, Treasury issuance announcement is more important for investors than the Fed decision.
- Tesla Inc (NASDAQ: TSLA) is an important stock for the sentiment in the stock market. As of this writing, TSLA stock is trading below $200. The reason for the drop is two fold:
- ON Semiconductor Corp (NASDAQ: ON), a supplier of silicon carbide chips for electric vehicles, reported lower than expected earnings and painted a weak picture of demand from EV manufacturers.
- Panasonic Holdings Corp (OTC: PCRFY), a supplier of batteries for Tesla vehicles, is cutting battery production.
- The drop in TSLA stock hit other EV stocks such as Rivian Automotive Inc (NASDAQ: RIVN), Lucid Group Inc (NASDAQ: LCID), Fisker Inc (NYSE: FSR), and Polestar Automotive Holding Uk Plc (NASDAQ: PSNY). Lithium stocks and ETF such as Livent Corp (NYSE: LTHM), Global X Lithium & Battery Tech ETF (ARCA: LIT), Sociedad Quimica y Minr de Chile SA (NYSE: SQM), Albemarle Corporation (NYSE: ALB), Sigma Lithium Corp (NASDAQ: SGML), and Lithium Americas Corp (NYSE: LAC) have also been hit.
- Among the important earnings this morning, earnings from Caterpillar Inc. (NYSE: CAT), Pfizer Inc. (NYSE: PFE), Amgen, Inc. (NASDAQ: AMGN), and BP plc (NYSE: BP) are lower than expected.
- 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.
JapanWe have been sharing with you the importance of Bank Of Japan (BOJ) policies for U.S. stock investors. In a major development, BOJ is abandoning strict yield control. In the long term, this is negative for the U.S. stock market.
China In China, factory activity has returned to contraction. Here are the details:
- Manufacturing PMI came at 49.5 vs. 50.2 consensus.
- Non-Manufacturing PMI came at 50.6 vs. 51.8 consensus.
After this data, there are more demands for government stimulus.
Eurozone Eurozone inflation eases. Here are the details:
- Headline CPI came at 0.1% month-over-month vs. 0.3% consensus.
- Headline CPI came at 2.9% year-over-year vs. 3.1% consensus.
- Core CPI came at 0.2% month-over-month. The prior was 0.2%.
- Core CPI came at 4.2% year-over-year vs. 4.2% consensus.
Flash Q3 GDP came at -0.1% vs. 0.0% consensus. This indicates that the economy in Europe is shrinking.
Magnificent Seven Money Flows In the early trade, money flows are positive in Meta Platforms Inc (NASDAQ: META), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOG).
In the early trade, money flows are neutral in Apple Inc (NASDAQ: AAPL) and Amazon.com, Inc. (NASDAQ: AMZN).
In the early trade, money flows are negative in Tesla and Nvidia (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 buying stocks in the early trade. Smart money is