Hotter Core Inflation But Momo Gurus Have A New Narrative, Quadruple Witching Ahead

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

Hotter Core Inflation

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 is in between the top support zone and mini resistance zone.
• The chart shows that RSI is approaching oversold.
• The chart shows that, overall, the stock market is directionless.
• The newly released data shows that core inflation is running hotter than expected. Here are the details of the consumer price index.
  • Headline CPI came at 0.6% vs. 0.6% consensus.
  • Core CPI came at 0.3% vs. 0.2% consensus.
• Initially, both stock and bond markets reacted negatively to the hotter than expected core inflation, but buying came in quickly as momo gurus’ new narrative took hold.  Momo gurus are often wrong. Nonetheless, you need to pay attention to them because the momo crowd blindly follows them.
• Momo gurus’ new narrative has two parts.
  • Buy stocks because headline CPI came as expected. The flaw in this narrative is that on an annualized basis, headline CPI is at 7.2%. Momo gurus counter that the number is high because of higher oil prices and the resulting higher gas prices. Well, most people drive and spend money on gas; it is fine to exclude gas for analysis, but the reality is that rising oil prices can not simply be ignored.
  • The second part of the momo gurus’ new narrative is to buy stocks by looking past the hotter than expected core CPI. The reason is that they claim to know that in the future core CPI will come down. Remember, Arora’s Second Law of Investing and Trading: “Nobody knows with certainty what is going to happen next in the markets.” The reality is that nobody knows, including momo gurus, what core CPI will do in the future.
• Producer Price Index, which measures inflation on the producer level, will be released tomorrow at 8:30am ET.
• The U.S. economy is 70% consumer based. For this reason, prudent investors pay attention to retail sales. Retail sales data will be released tomorrow at 8:30am ET. The consumer has been on a buying binge with excessive spending. There are many metrics that are showing that the consumer is running out of cash and charging more and more to credit cards. Tomorrow’s data will be a tell on the status of consumer spending.
• Tech CEOs are heading to Washington for a seven hour long session with senators on AI. All 100 senators have been invited. Expect the momo crowd to try to move up AI stocks. However, the session is closed to cameras. This will limit any upside buying.
• Quadruple witching is ahead on Friday. In quadruple witching, stock index futures, futures options, stock options, and single stock futures expire.
• Quadruple witching often leads to volatility. Historically, often, quadruple witching in September is vicious.
• ARM IPO is 10 times oversubscribed. This is creating positive sentiment.
• 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.

Europe

There is speculation that the European Central Bank will hike interest rates by 25 basis points tomorrow.

The U.K.’s GDP contracted at the fastest monthly rate since December. Economic data in the U.K. has often led economic data in the U.S.

India

After the success of the G-20 summit in New Delhi, sentiment towards Indian stocks is approaching extremely positive. Keep in mind that when sentiment enters the extremely positive zone, it is a contrary signal. In plain English, this means that it is time to sell.  However, sentiment is not a precise timing indicator.  

Magnificent Seven Money Flows

In the early trade, money flows are positive in Meta Platforms Inc META, Tesla Inc TSLA, and Apple Inc AAPL.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN, NVIDIA Corp NVDA, and Alphabet Inc Class C GOOG.

In the early trade, money flows are neutral in Microsoft Corp MSFT.

In the early trade, money flows are mixed 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 🔒 in the early trade. To see the locked content, please click here to start a free trial.

Gold

The momo crowd is selling gold in the early trade. Smart money is 🔒 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 like a yoyo in oil in the early trade. Smart money is 🔒 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 above $26,000.

Markets

Our very, very short-term early stock market indicator is indeterminable due to heavy noise in the data and upcoming quadruple witching. 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.

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.