Critical Inflation Data Ahead, Credit Card Debt Hits $1 Trillion, China Enters Deflation

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

Consumer Price Index Ahead

Please click here for a chart of Apple Inc AAPL.

Note the following:

• The Morning Capsule is about the big picture, not an individual stock. The chart of AAPL stock is being used to illustrate the point.
• The chart shows AAPL stock bounced from the top band of the support zone. The Arora Report has an unrivaled record of providing support zones, resistance zones, buy zones, and target zones over a long period of time.
• We previously wrote:

Apple stock is the largest stock in the market, has heavy weight in indexes, and is the most beloved stock perceived by many as a safe stock. For this reason, whatever happens to Apple stock has a disproportionate impact on the entire stock market.

• The all important Consumer Price Index (CPI) data is ahead. CPI will be released Thursday at 8:30am ET.  The consensus is 0.2% for both core and headline CPI.
• Producer Price Index (PPI) will be released on Friday at 8:30am ET. The consensus is 0.2% for both core and headline PPI.
• The Fed released its latest Household Debt and Credit report. Here are the key points:
  • Household debt hit $17T in the latest report. $2.9T of that debt has accumulated from the end of 2019.
  • Credit card debt hit a record $1.03T, increasing 4.6% quarter-over-quarter.
  • Auto loans also increased, following the trend.
  • Student loan balances decreased to $1.57T.
  • Mortgage balances and home equity credit lines were stable.
• Especially important for prudent investors is the question about a potential recession. In The Arora Report analysis, a recession has been postponed to 2024. The main reasons are AI frenzy in the stock market, excessive consumer spending, leftover funds in consumers’ pockets from pandemic government programs, and Bidenomics. The fact that credit card debt has reached a record shows that one source of spending is borrowing. This cannot last forever.  
• 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.

China

The news is that China has entered deflation. In The Arora Report analysis, it is nowhere near as bad as the headline appears for the following reasons.  

• July CPI came at +0.2% month-over-month vs. -01.% consensus. This data indicates that prices went up in July, not down.
• CPI came at -0.3% year-over-year vs. -0.4% consensus. This indicates that prices went down less than expected.
• We have been sharing with you for a while that prices at the producer level continue to fall.  We also shared with you related data yesterday that exports of Chinese goods fell. We wrote:

Chinese exports fell by 14.5% year-over-year vs. 12.5% consensus. Exports to the U.S. fell by 23%. Exports to the E.U. and the Association of Southeast Asian Nations fell by 21%. These are the biggest drops since the start of the pandemic. Since China is the factory to the world, this indicates that the consumer demand for goods is falling.

• PPI came at -4.4% year-over-year vs. -4.4% consensus.
• The Chinese government has ordered economists to tone down negative pieces about the Chinese economy.
• In The Arora Report analysis, the data increases the probability of stimulus by the Chinese government. Of course, these days stock markets everywhere, not just in the U.S., love government stimulus.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. AMZN, NVIDIA Corp NVDA, Microsoft Corp MSFT, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Tesla Inc TSLA, and AAPL.

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

The dichotomy between positive money flows in the magnificent seven stocks but negative money flows in index ETFs in the early trade sets the stock market up for an interesting day.  

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 selling 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

API crude oil inventories came at a build of 4.067M barrels vs. a consensus of a draw of 0.233M 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 has moved above $30,000.

Markets

Our very, very short-term early stock market indicator is neutral but expect the market to open higher. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

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 holding 🔒 in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time. To see the locked content, please click here to start a free trial.

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 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 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.