Retail Sales Shocker, Stock Market Providing Opportunities Beyond Magnificent Seven And AI

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

Retail Sales Shocker

Please click here for an enlarged version of the chart of Uber Technologies Inc UBER.

Note the following:

• The Morning Capsule is about the big picture, not an individual stock. The chart of UBER stock is being used to illustrate the point.
• The chart shows the jump up in UBER stock on the news of the buy back.
• The chart shows the Arora buy zone and the power of buy zones. The example from UBER on the chart represents a profit 208%.
• UBER is a prime example and a key reminder to investors that there are opportunities beyond the magnificent seven and AI. While the magnificent seven stocks and AI have been driving the stock market, there are opportunities for investors in less expensive stocks with better potential for risk adjusted returns. The magnificent seven stocks are Apple Inc AAPL, Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Microsoft Corp MSFT, NVIDIA Corp NVDA, and Tesla Inc TSLA.
• There is apparently a new serious national security threat. Read the section on Russia below.
• From a seasonality perspective, historically, the next two weeks tend to be weak in the stock market. It will be interesting to see if the AI frenzy trumps seasonality. In The Arora Report analysis, the main factor looking ahead is Nvidia earnings. Please see yesterday’s Morning Capsule for details.  
• There is a new milestone in AI –Nvidia’s market cap is now higher than the market cap of Amazon and Alphabet.
• Weekly Initial Claims came at 212K vs. 221K consensus. In The Arora Report analysis, the jobs picture continues to be strong, especially at the low end. The jobs picture continues to be weak in IT.  
• The U.S. economy is 70% consumer based. For this reason, prudent investors pay attention to retail sales. The consumer has been on a binge of excessive spending. Momo gurus have been predicting that the consumer will continue with excessive spending. At The Arora Report, we have been sharing with you that consumer liquidity is becoming less and will ultimately impact consumer spending. The just released data on retail sales is a shocker and shows that The Arora Report call is spot on. Here are the details of retail sales data:
  • Headline retail sales came -0.8% vs. -0.2% consensus.
  • Retail sales ex-auto came at -0.6% vs. 0.1% consensus.
• Producer Price Index (PPI) will be released tomorrow at 8:30am ET and may be market moving.
• The U.K. and Japan are on track to enter technical recessions. See the sections below. This set of data may cause prudent investors to rethink the case of no recession in the U.S.  Historically, it is not uncommon for U.S. economic data to follow the U.K.’s economic data after a few months.
• 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.

Russia

Yesterday, the stock market briefly dipped when House Intelligence Committee Chairman Michael Turner warned of a serious new national security threat.  He felt the threat was so serious that he asked President Biden to declassify the information about this threat. 

The momo crowd, apparently oblivious to the report, aggressively bought the shallow dip.  

At this time, it is not clear what the real threat is.  It appears that Turner is talking about Russia experimenting with nuclear energy in space to disable U.S. satellites. The U.S. military is heavily dependent on satellites.  

Japan

Japan’s flash Q4 GDP came at -0.1% quarter-over-quarter vs. 0.2% consensus. If the flash GDP is not revised upwards, Japan is on track to enter a technical recession.

U.K.

U.K. flash Q4 GDP came at -0.3% quarter-over-quarter vs. -0.1% consensus. If the flash GDP is not revised upwards, the U.K. is on track to enter a technical recession.

Layoffs

Networking giant Cisco Systems Inc CSCO is laying off several thousand people due to slower demand.

Among financial firms, Morgan Stanley MS is laying off several hundred people.

Magnificent Seven Money Flows

In the early trade, money flows are positive in META, MSFT, and TSLA.

In the early trade, money flows are neutral in AMZN and NVDA.

In the early trade, money flows are negative in AAPL and GOOG.

In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust SPY 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 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 GLD. The most popular ETF for silver is iShares Silver Trust SLV. 

Oil

The momo crowd is inactive 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 now over $52,000. Bitcoin memes believe that bitcoin whales are set to drive bitcoin to $65,000.

There is aggressive buying in bitcoin miners.

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 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.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.