Consumers Splurge But Fitch Warning And China Data Hit The Sentiment, Saudi Arabia Buys Nvidia Chips

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

Consumers Splurge

Please click here for a 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 the stock market backed off after touching the low band of the mini resistance zone but is still significantly above the top support zone.
• RSI on the chart shows that the stock market is coming out of the oversold condition.
• The U.S. economy is 70% consumer based. Therefore, retail sales data carries heavy weight in the adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions. Please click here to see how this is achieved. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change. The U.S. consumer continues to splurge. Here are the details from the data just released:
  • July retail sales came at 0.7% vs. 0.4% consensus.
  • July retail sales ex-auto came at 1.0% vs. 0.4% consensus.
• In The Arora Report analysis, strong retail sales data is a double edged sword. On one hand, consumer splurging is postponing the recession. On the other hand, it will force the Fed’s hand to maintain high interest rates for longer.  
• In spite of strong retail sales, sentiment is taking a hit this morning because of two developments.
  • The rating agency Fitch is warning that it may downgrade credit ratings of several U.S. banks including JPMorgan Chase & Co JPM. Previously, Moody’s downgraded ten banks including U.S. Bancorp USB and Truist Financial Corp TFC.
  • Economic data from China is weak. Here are the details:
    • July retail sales came at 2.5% year-over-year vs. 4.5% consensus.
    • Industrial production came at 3.7% year-over-year vs. 4.4% consensus.
• Peoples’ Bank of China reduced its one year lending facility rate to 2.5% from 2.6% and reduced the 7-day reverse repo rate 1.80% from 1.90%.
• Youth unemployment in China has been rising rapidly. The Chinese government is responding by saying it will no longer publish youth employment data. The youth unemployment rate in China is now at 21.3%.
• In an important earnings report for the stock market, Home Depot Inc HD is guiding FY23 revenue down 2% - 5% and earnings down 7% - 13%. The company is also announcing a new $15B share repurchase program.
• In a noteworthy development, Berkshire Hathaway Inc Class B (NYSE: BRK-B), Warren Buffett’s company, is buying three home builder stocks: Lennar Corp LEN, DR Horton Inc DHI, and NVR Inc (NYSE: NVR).
  • Retail investors have been aggressively buying BRK.B stock.
• 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.

Magnificent Seven Money Flows

Saudi Arabia and U.A.E. are buying billions of dollars worth of NVIDIA Corp NVDA chips. Saudi Arabia has bought 3,000 H100 chips from Nvidia. H100 costs $40K, and Nvidia is calling it “the world’s first computer designed for generative AI.” Saudi Arabia and U.A.E. are aiming to become powerhouses in artificial intelligence.

In the early trade, money flows are positive in Nvidia.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN, Microsoft Corp MSFT, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Tesla Inc TSLA, and Apple Inc AAPL.

In the early trade, money flows are negative in SPDR S&P 500 ETF Trust and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is selling stocks in the early trade.

Gold

The momo crowd is inactive 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 GLD. The most popular ETF for silver is iShares Silver Trust SLV. 

Oil

The momo crowd is negative 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 USO.

Bitcoin

Bitcoin BTC/USD is range bound.

Markets

Our very, very short-term early stock market indicator is negative. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

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 holding 🔒 in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time. To see the locked content, please click here to start a free trial.

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 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 2008 financial crash, the start of a mega bull market in 2009, the COVID crash, the post-COVID bull market, and the 2022 bear market. Please click here to sign up for a free forever Generate Wealth Newsletter.