Stock Market Dodges A Bullet – Momo Gurus Proven Wrong

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

Fed’s Favorite Inflation Gauge

Please click here for an enlarged 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 is consolidating between the resistance zone and support zone.
• RSI on the chart shows that the stock market can go either way from here.
• This morning, the stock market dodged a big bullet. The bullet was the fear that PCE, the Fed’s favorite inflation gauge, would come higher than the consensus. The data came inline with the consensus. Here are the details:
  • Headline PCE came at 0.3% vs. 0.3% consensus.
  • Core PCE came at 0.3% vs. 0.3% consensus.
• The PCE data just released has proven that The Arora Report call has been spot on. The Arora Report call has been that inflation is coming from services and is sticky. Digging below the headline, the just released data shows that inflation is coming from services and is sticky.
• Momo gurus have been forecasting that inflation would have gone down to 2% by now. If you annualize 0.3%, it translates to 3.6%. The momo gurus are wrong again. Even though momo gurus are almost always wrong, prudent investors should not ignore them. The reason is that the media promotes momo gurus because they boost ratings. Momo gurus have legions of followers who do not do any analysis and just follow the momo gurus like sheep.
• The U.S. economy is 70% consumer based. Therefore, prudent investors pay attention to personal income and personal spending. Consumers continue to excessively spend. This is helping the economy and the stock market in the short term, but it is not sustainable in the long term. Here are the details of the data:
  • Personal spending came at 0.8% vs. 0.6% consensus.
  • Personal income came at 0.5% vs. 0.5% consensus.
• In the stock market, there is a sigh of relief that earnings from Microsoft Corp MSFT, Alphabet Inc Class C GOOG, and Alphabet Inc Class A GOOGL were better than the consensus and whisper numbers.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc AAPL, Amazon.com, Inc. AMZN, GOOG, MSFT, and NVIDIA Corp NVDA.

In the early trade, money flows are negative in Meta Platforms Inc META and Tesla Inc TSLA.

In the early trade, money flows are positive 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 buying gold in the early trade. Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

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.

Bitcoin

Bitcoin BTC/USD is range bound.

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.