Mother Of All Reports Will Determine Stock Market Direction

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

Stock Market Direction

Please click here for an enlarged version of the 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 the stock market has pulled back on Powell’s remarks.
• The chart shows the stock market is near the top band of the support zone.
• The chart shows that in the early trade, the dip in the stock market is being bought.
• The FOMC rate decision came as expected yesterday. However, Powell trampled on the speculation of a rate cut in March. Please read yesterday’s Afternoon Capsule for details.
• Fed Chair Powell said labor availability is a big factor in the Fed’s decision.
• Previously, the Fed was trying to drive unemployment higher. The reason was in traditional economics, higher unemployment brings down inflation.
• This cycle has defied traditional economics thus far. Inflation is coming down while unemployment remains very low.
• In The Arora Report analysis of Powell’s press conference, the Fed is not worried about inflation running back up. However, the Fed is concerned about inflation being sticky and staying above their target. If the employment picture stays strong, it will be difficult for the Fed to cut interest rates as the Fed does not want inflation to get stuck above their target. This is the reason prudent investors are paying very close attention to the jobs report.
• The jobs report, known as the mother of all reports, will be released tomorrow at 8:30am ET.
• In The Arora Report analysis, the jobs report tomorrow is the key to the near-term direction of the stock market. If the jobs report is strong, the stock market will likely tumble. If the jobs report is weak, the stock market will likely run up. 
• Weekly initial jobless claims came at 224K vs. 215K consensus. This indicates that the jobs picture is still very strong, but the data is beginning to weaken.
• Q4 Productivity-Prel came at 3.2% vs. 2.1% consensus.
• Q4 Unit Labor Costs-Prel came at 0.5% vs. 1.9% consensus.
• In The Arora Report analysis, higher productivity and lower unit labor costs are excellent pieces of news for the U.S. economy. Higher productivity and lower labor costs mean higher profits for U.S. companies. Higher profits mean higher stock prices in the long run.
• Additional potentially market moving data will be released today:
  • ISM Manufacturing Index will be released at 10am ET.
  • Earnings from Apple Inc AAPL, Amazon.com, Inc. AMZN, and Meta Platforms Inc META will be announced after the close.
• 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.

Real Estate Jitters

Aozora Bank, a Japanese institution, fell more than 20% due to losses related to U.S. commercial real estate.

Deutsche Bank (DB), the Germany banking giant, quadrupled its U.S. real estate loss reserves to €123M.

New York Community Bancorp stock (NYCB) fell 38% related to real estate losses.

Regional bank ETF (KRE) had the worst daily loss since Silicon Valley Bank went bankrupt in March 2023.

In The Arora Report analysis, so far the stock market is ignoring the issues related to commercial real estate, but prudent investors need to keep an eye. This was one of the factors behind the signal yesterday for changes in the protection band.  

Magnificent Seven Money Flows

In the early trade, money flows are positive in AAPL, AMZN, Alphabet Inc Class C GOOG, Microsoft Corp MSFT, META, 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 stocks in the early trade. Smart money is inactive in the early trade.

Gold

The momo crowd is like a yoyo 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

OPEC+ Monitoring Committee is recommending no change in oil output.  

The momo crowd is buying oil 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 moving with the sentiment in speculative junk stocks.

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.