Benzinga - by The Arora Report, Benzinga Contributor.
To gain an edge, this is what you need to know today.
A Murky Report Please click here for an enlarged version of the 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 that in the big picture, the market has not moved much on the Jobs Report.
- On a micro level, there was initially selling on the Jobs Report but the dip was aggressively bought running up the market.
- The trendline on the chart shows that the stock market is beginning to break away to the upside from the trendline.
- The chart shows that the stock market is comfortably above the support zone.
- RSI on the chart shows that it is easier for the market to go higher than lower.
- Jobs Report, also known as the mother of all reports, is murky giving ammunition to both stock market bulls and bears. Here are the details:
- Non-farm payrolls came at 275K vs 195K consensus. This indicates that the job growth is a lot stronger than expected.
- Nonfarm private payrolls came at 223K vs 150K consensus. This indicates that the job growth is strong in the private sector.
- Unemployment rate came at 3.9% vs 3.7% consensus. This indicates that while the job growth is strong unemployment is rising.
- Average hourly earnings came at 0.1% vs 0.3% consensus. In The Arora Report analysis, this is the most important data point for investors. This data indicates that hourly wages are rising at the rate of 1.2% annualized. This is much lower than what workers would like but is great for the profits of corporations and also for curbing inflation. This data point is positive for the stock market.
- Average work week came at 34.3 vs 34.3 consensus.
- The forgoing data is such that the analysts can convincingly make a case for all three of the following depending on personal bias:
- No landing
- Soft landing
- Recession
- Momo gurus are already out claiming that the Jobs Report shows no landing and as a result the stock market is going to go much higher.
- The record shows that momo gurus are usually wrong but prudent investors need to pay attention to them because the momo crowd follows these gurus and the momo crowd is in control of the stock market these days. Further, prudent investors need to understand that the job of the momo gurus is to run up the stock market in the disguise of analysis.
- Earnings from three artificial intelligence darlings Broadcom Inc (NASDAQ: AVGO), Marvell Technology Inc (NASDAQ: MRVL), and Mongodb Inc (NASDAQ: MDB) were below whisper numbers. You would think that after the tremendous rise in AI stocks, the trifecta of bad news would hit AI stocks to the downside. However, this is not the case as the momo crowd continues to aggressively buy these stocks at these levels. This is not a surprise because the momo crowd does not do any analysis and is driven by the momentum.
- The Arora Report was the first one to pick up on the importance of artificial intelligence and was the first one to write that a fortune is to be made in artificial intelligence over the next seven years (now six years). The Arora Report portfolios have done extremely well due to the artificial intelligence rally. Having said that, in the short term, the AI rally is overdone as is evidenced by the above referenced earnings reports.
- 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.
In the early trade, money flows are neutral in Apple Inc (NASDAQ: AAPL), Microsoft Corp (NASDAQ: MSFT), Amazon.com, Inc. (NASDAQ: AMZN), and Alphabet Inc Class C (NASDAQ: GOOG).
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 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.
The most popular ETF for gold is SPDR Gold Trust (ARCA:GLD). The most popular ETF for silver is iShares Silver Trust (ARCA:SLV).
Oil The momo crowd is buying oil in the early trade. Smart money is inactive in the early trade.
For longer-term, please see oil ratings.
The most popular ETF for oil is United States Oil ETF (ARCA:USO).
BitcoinBitcoin (CRYPTO: BTC) is seeing buying on hopes that whales will take advantage of low liquidity over the weekend to run up bitcoin to $80K.
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.
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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