Stock Market Celebrates Cooler CPI, Oil Glut By The End Of The Decade

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

Cooler CPI

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 the stock market taking another leg up on cooler Consumer Price Index (CPI).
• The chart shows the volume has been low, indicating lack of conviction. In theory, the volume today should be significantly higher. The Arora Report will be carefully watching the volume.
• RSI on the chart shows the market is overbought, making it susceptible to a pullback.
• CPI data came cooler than expected. Here are the details:
  • Headline CPI came at 0.0% vs. 0.1% consensus. This is the lowest since 2020.
  • Core CPI came at 0.2% vs. 0.3% consensus.
• In The Arora Report analysis, the probability of a rate cut in September is now 55%, and the probability of a rate cut in December is 90%.    
• The Fed’s rate decision will be announced at 2pm ET, followed by Powell’s press conference at 2:30pm ET.
• At The Arora Report, we will be carefully watching the dot plot. The dot plot indicates interest rate projections of FOMC members.
• In the early trade, the buying in AI stocks is especially aggressive.  
• 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.

China

Inflation in China is also falling both at the producer level and the consumer level. Since the U.S. is a major importer of Chinese goods, lower producer level inflation in China also helps lower inflation in the U.S. Here are the details:

• China’s CPI came at 0.1% month-over-month vs. 0.0% consensus and 0.3% year-over-year vs. 0.4% consensus.
• China’s PPI came at -1.4% year-over-year vs. -1.5% consensus.

Magnificent Seven Money Flows

In the early trade, money flows are positive in 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 neutral in Apple Inc AAPL.

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

Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.

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.

The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV. 

Oil

According to the International Energy Agency, global reduction in fossil fuel consumption coupled with surging oil production capacity is creating a major oil surplus. Production capacity is expected to be 8M barrels per day above demand by 2030. This data indicates a glut in oil by the end of the decade.     

API crude inventories came at a draw of 2.428M barrels vs. consensus of a draw of 1.750M barrels.

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 rallying on lower CPI.

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.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

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.