Stock Market Bulls Excited But Not Asking The All Important 'Pay Later' Question

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

Investors Excited

Please click here for a chart of SPDR S&P Retail ETF XRT.

Note the following:

• The chart shows that the retail stocks have been rallying on strong consumer buying. Please see yesterday’s Morning Capsule for details of the strong Black Friday sales. Earlier, Adobe had increased its estimate of online Cyber Monday sales to $12.2B from the prior $12B.  Now, the estimate has risen to $12.4B.
• Investors are excited and believe that the retail ETF XRT is heading towards the resistance zone shown on the chart.
• Prudent investors should note that there is RSI divergence developing as shown on the chart. In plain English, this means that RSI is now lower even though the price has gone higher. The traditional interpretation is negative for retail stocks. This flies in the face of bullish expectations from investors.
• In The Arora Report analysis, after maxing out their credit cards, consumers are increasingly using ‘buy now pay later.’ As investors are excited about ‘buy now,’ they are not asking the ‘pay later’ question. When the bills come due early next year, will the consumer be able to pay them while continuing to splurge?
• Two important data points are ahead this week.
  • PCE, the Fed’s favorite inflation gauge, will be released on Thursday at 8:30am ET.
  • Powell is speaking in Atlanta on Friday.
• Consumer confidence will be released today at 10am ET and may be market moving.
• This morning, the stock market rally is pausing after S&P 500 rallied 8.5% this month. This is the fourth biggest monthly rally over the last 10 years.
• 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, Microsoft Corp MSFT, NVIDIA Corp NVDA, and Tesla Inc TSLA.

In the early trade, money flows are negative in Alphabet Inc Class C GOOG and Meta Platforms Inc META.

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 🔒 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 🔒 gold 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 buying 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 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.