Fed's Favorite Inflation Gauge Rises By Most In A Year, Bitcoin Soars, Putin's Nuclear Threat

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

Inflation Gauge

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 that the stock market has failed to make progress since the release of hotter CPI.
• The chart shows that the stock market was pulling back before the release of PCE, but improved on release of PCE.
• The stock market has been anxiously awaiting PCE. PCE is the Fed’s favorite inflation gauge. PCE rose the most in a year. Here are the details:
  • Headline PCE came at 0.3% vs. 0.4% consensus.
  • Core PCE came at 0.4% vs. 0.4% consensus.
• In The Arora Report analysis, the stock market improved on the release of the PCE data as there was fear of an even worse number.
• Digging into the data that underlies PCE, in The Arora Report analysis, there is deflation in goods, but there is serious inflation in services. Deflation in goods is coming from China.
• The release of PCE data has triggered aggressive buying in AI stocks and bitcoin. The buying is especially aggressive in C3.ai Inc AI after the release of PCE data. C3.ai released better than expected earnings after the close yesterday. As a full disclosure, a signal was given in The Arora Report's ZYX Buy Change Alert.
• The release of PCE data is also leading to very aggressive buying in small caps. As a full disclosure, iShares Russell 2000 ETF IWM and its buy zone are in The Arora Report's ZYX Allocation Core Model Portfolio.
• Personal income and spending data was also released this morning. Here are the details:
  • Personal spending came at 0.2% vs. 0.2% consensus.
  • Personal income came at 1.0% vs. 0.5% consensus.
• Weekly initial claims came at 215K vs. 206K consensus. This indicates that the jobs picture remains strong, especially at the low end. However, the jobs picture is getting weaker in IT as many jobs are being replaced by AI.
• Yesterday, the Fed’s Williams, Collins, and Bostic said that the Fed will continue to be date dependent. Bostic said that he sees the first rate cut this summer, while Collins and Williams see the first rate cut later in 2024.
• More Fed speak is ahead today from Fed Presidents Raphael Bostic, Austan Goolsbee, and Loretta Mester.
• 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.

Japan

As we have been writing, prudent investors need to pay attention to Bank of Japan policies. Not only is the Japanese stock market hitting a new 34 year high, but interest rates and movements in Japan impact the U.S. stock market.

Bank of Japan board member Hajime Takata signaled a strong case for raising interest rates. The yen jumped. As a full disclosure, ETFs iShares MSCI Japan ETF EWJ and Invesco CurrencyShares Japanese Yen Trust FXY are in The Arora Report's ZYX Allocation Core Model Portfolio.

Russia

Putin is warning that if the West directly intervenes in Ukraine, it risks nuclear war.  Putin’s comments are in response to a comment by French President Macron that NATO could send forces to Ukraine.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Meta Platforms Inc META, NVIDIA Corp NVDA, Microsoft Corp MSFT, and Tesla Inc TSLA.

In the early trade, money flows are neutral in Apple Inc AAPL and Alphabet Inc Class C GOOG.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN.

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 aggressively buying stocks in the early trade. Smart money is inactive in the early trade.

Gold

The momo crowd is aggressively 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 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 soared to $64,000 yesterday before pulling back. Release of PCE data brought aggressive buying into bitcoin. Bitcoin is now approaching $64,000 again.

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 big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. 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.