Trifecta Of Good Data Puts Animal Spirits In High Gear Again To Buy Stocks

To gain an edge, this is what you need to know today.

Trifecta Of Good Data

An enlarged chart of SPDR S&P 500 ETF Trust SPY which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The chart shows that previously the stock market dipped below the breakout line.
• The chart shows that on release of the Consumer Price Index (CPI) data the stock market has now crossed above the breakout line.
• The buying in the early trade is extremely aggressive.
• Core inflation data at the consumer level came cooler than expected but the headline data was hotter than expected.  For the time being, the stock market is ignoring the hotter headline data and focusing on the cooler core data.  Here are the details:
  • Headline CPI came at 0.4% vs. 0.3% consensus.
  • Core CPI came at 0.2% vs. 0.3% consensus.
• The Arora Report previously shared with you:

The protection band is not being changed at this time, but members may consider adjusting their positions within the protection band as per personal preference.  There are two reasons for no change in the protection band at this time:

• Earnings season is ahead.  If earnings are good, the stock market may be able to resist rising yields longer.
• Bonds are now very oversold.  For this reason, bonds may see a technical bounce.  The bounce in bonds means yields pulling back.  If yields pull back, the stock market will rally.
• On both of the above counts, the data is positive.
  • Today is a big day for earnings from major financial stocks.  JPMorgan Chase & Co JPM, Goldman Sachs Group Inc GS, Wells Fargo & Co WFC, Bank of New York Mellon Corp BK, BlackRock Inc BLK, and Citigroup Inc C are reporting earnings better than consensus.
  • Bonds are bouncing from oversold conditions.
• The trifecta of cooler Core CPI, better than expected earnings, and bonds bouncing is bringing in extremely aggressive buying.
• In The Arora Report analysis, the probability of a correction is now at 40%. 
• The Fed’s Beige Book will be released today at 2pm.
• Retail sales and initial jobless claims data will be released tomorrow at 8:30am ET and may be market moving.

Germany

Germany’s GDP shrank now for two consecutive years.  Economic growth in 2025 is not expected.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc, Amazon.com, Inc., Alphabet Inc Class C, Meta Platforms Inc, Microsoft Corp, NVIDIA Corp, and Tesla Inc.

In the early trade, money flows are positive in S&P 500 ETF (SPY) and Invesco QQQ Trust Series 1.

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trus.  The most popular ETF for silver is iShares Silver Trust.  The most popular ETF for oil is United States Oil ETF.

Bitcoin

Bitcoin BTC/USD is seeing buying on cooler Core CPI.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  The proprietary protection band from The Arora Report is very popular.  The 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 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 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.

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.