Nvidia Beaten By Clorox, Mother Of All Reports Ahead

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

Jobs Picture

Please click here for an enlarged chart of Clorox Co CLX and NVIDIA Corp NVDA. CLX chart is in the top pane.  NVDA chart is in the bottom pane.

Note the following:

• This article is about the big picture, not an individual stock.  The charts of CLX and NVDA stocks are being used to illustrate the point.
• The chart shows that CLX has made significant gains at a time when NVDA has lost market value, including the worst day ever for NVDA when it lost $279B.
• The trendline on the chart shows that CLX has moved up smoothly, whereas NVDA has been very volatile.  CLX stock is an example of high risk adjusted return, whereas there is high risk in NVDA stock at this time.
• As full disclosure, CLX is in the portfolio that surrounds the core Model Portfolio.  NVDA is in the core Model Portfolio.  Having CLX and NVDA in the portfolio from a risk perspective is an illustration of how to structure a portfolio for high risk adjusted returns to maximize the wealth you generate over your lifetime.
• CLX is an example of the cyberhack strategy.  The premise behind the cyberhack strategy is that when a company is cyberhacked, and its business suffers, the decline in the stock is often temporary and presents a buying opportunity.  CLX stock dropped when it was not able to ship orders due to a cyberhack.  As full disclosure, CLX is long from $118.78.
• RSI on the chart shows that CLX is overbought.  Overbought stocks tend to pullback.  Pullbacks are often buying opportunities.  As full disclosure, there will be a new signal in The Arora Report’s ZYX Buy on CLX.
• JOLTS jobs report came at 7.67M openings vs. 8.1M consensus.  This indicates the jobs picture is weakening.
• The Fed's Beige Book indicated that economic activity is stable to declining in most regions of the country.
• ADP employment change came at 99K vs. 150K consensus.  ADP is the largest private payroll processor in the country.  ADP uses its data to give a glimpse of the jobs picture in advance of the official report.
  • In The Arora Report analysis, the ADP report shows that the jobs picture is weakening. The momo crowd is oblivious as usual, but prudent investors need to be aware that the weakening jobs picture leads to a weakening economy.  A weakening economy leads to lower earnings.  Lower earnings lead to a lower stock market.
• Jobless claims came at 227K vs. 236K consensus.  This data is running counter to other recent data.  However, as we have been stressing, investors should look at the four week moving average and not any one single week.  Jobless claims is also a leading indicator and carries heavy weight in The Arora Report models.
• ISM Non-Manufacturing Index will be released at 10am ET.  The consensus is 51.  This data is likely to be market moving if it is far off from the consensus.  This is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories.  In plain English, adaptiveness means that the model changes itself with market conditions.  Please click here to see how this is achieved.  Most models on Wall Street are static.  They work for a while and then stop working when market conditions change.
• The jobs report, also known as the mother of all numbers due to its importance, is ahead.  It will be released Friday at 8:30am ET.  Here are the consensus numbers:
  • Non-farm payrolls of 165K
  • Non-farm private payrolls of 142K
  • Average hourly earnings of 0.3%
  • Unemployment rate of 4.2%
  • Average work week of 34.3
• In The Arora Report analysis, the jobs report will have a major impact on the Fed's decision to cut rates by 25 basis points or 50 basis points.  In The Arora Report analysis, here are the current probabilities:
  • 75% probability of a 25 basis point cut
  • 25% probability of a 50 basis point cut
• In The Arora Report analysis, if the non-farm payrolls are under 100K and the unemployment rate reaches 4.5% or higher, the probability of a 50 basis point rate cut will go up significantly.  
• In The Arora Report analysis, if the non-farm payrolls are under 100K and the unemployment rate reaches 4.5% or higher, the probability of a stock market correction will go up to 70%.  

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. AMZN and Tesla Inc TSLA.

In the early trade, money flows are negative in Apple Inc AAPL, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Microsoft Corp MSFT, and NVDA.

In the early trade, money flows are negative in SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust GLD.  The most popular ETF for silver is iShares Silver Trust SLV.  The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is seeing light selling.

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 five 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.