Stock Market Bulls Disappointed On Hotter Producer Inflation But Trusting Market Mechanics

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

Hotter Producer 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 moved up above the top band of the top support zone. The move up was driven primarily by market mechanics.
• Bulls are confident that market mechanics will drive the stock market to the mini resistance zone shown on the chart.
• Bulls have data to back up their belief. About two thirds of the market rise this year is due to market mechanics. Market mechanics tend to become extra powerful in November and December. Bulls are also pointing to the historical data that shows that the year end chase is to the upside in a year when the stock market has been up more than 10% going into the last quarter. Of course, prudent investors need to take into account the current conditions that are unique to this year. All investors should strive to develop deep knowledge of market mechanics to gain a big edge. Due to the high value, Wall Street professionals keep the details of market mechanics close to their chest. The best way to learn about market mechanics is to listen to the podcasts in Arora Ambassador Club.
• Producer Price Index came hotter than expected. Here are the details:
  • Headline PPI came at 0.5% vs. 0.3% consensus.
  • Core PPI came at 0.3% vs. 0.2% consensus.
• Wall Street has been positioned for better than expected PPI and CPI. Today PPI has dashed bulls’ hopes, but they are hanging tough, trusting that market mechanics will drive the stock market higher irrespective of the data.
• CPI will be released tomorrow at 8:30am ET. The latest consensus is 0.3% for both the headline and core.
• San Francisco Fed President Mary Daly commented that the neutral rate may now be at 3%. Stock market bulls are still hoping for a neutral rate of less than 2%.
• The Fed minutes will be released at 2pm ET. There is plenty of Fed speak ahead including Atlanta Fed President Raphael Bostic, Fed Governor Christopher Waller, and Boston Fed President Susan Collin.
• In The Arora Report analysis, the stock market is expecting dovish Fed minutes and dovish Fed speak. Hawkish Fed minutes or any hawkish Fed speak may cause the stock market to move down.
• The consensus in the market is that Israel will crush Hamas in Gaza as long as there is no northern front. The market has also concluded that there will be no northern front. However, prudent investors should stay alert to what is happening in the north. Rockets have been fired by Hezbollah from the north. Hezbollah is closely aligned with Iran.
• Exxon Mobil Corp XOM buying Pioneer Natural Resources Co PXD for $58B is generating 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.

Magnificent Seven Money Flows

In the early trade, money flows are positive in 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.

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 stock 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 buying 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 selling oil in the early trade. Smart money is 🔒 oil 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 🔒. 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.