Better Inflation Data From Europe And U.S. Bringing Buyers Into Oversold Stock Market

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

Better Inflation Data

Please click here for a 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 has bounced from the bottom band of the top support zone.
• The chart shows the stock market is at the top band of the top support zone.
• RSI on the chart shows the stock market is oversold. As we have been sharing with you, oversold markets tend to bounce.
• The chart shows that the oversold stock market is bouncing on better inflation data from the U.S. and Europe.
• PCE is the Fed’s favorite inflation gauge. The data came slightly better than expected.
  • Headline PCE came at 0.4% vs. 0.4% consensus.
  • Core PCE came at 0.1% vs. 0.2% consensus.
• In The Arora Report analysis, core PCE is very important; however, core PCE does not include energy and food. The rising price of oil has a significant impact on lower income consumers.  For this reason, prudent investors should not disregard the rising price of oil, even though that is exactly what the market is choosing to do this morning. 
• Eurozone inflation has cooled to its lowest point in two years.
  • Eurozone CPI came at 4.3% year-over-year vs. 4.5% consensus. CPI came at 0.3% month-over-month vs. 0.5% prior.
  • Eurozone core CPI came at 4.5% year-over-year vs. 4.8% consensus. Core CPI came at 0.2% month-over-month vs. 0.3% prior.
• The potential government shutdown drama continues in Washington.
• 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

Bank of Japan engaged in unscheduled bond purchases. The amount was not significant. However, the operation was designed to send a message to speculators to stop short selling yen. As we have been sharing with you, moves by the Bank of Japan can have a major impact on the U.S. stock market. For this reason, it is important for prudent investors to stay in tune with the Bank of Japan.  

China Sends Chills

China is sending chills across multinational corporations. China is barring a senior executive from the U.S. based firm Kroll from leaving China. Recently, China also barred a senior executive of Japanese investment bank Nomura from leaving China.

In The Arora Report analysis, the stock market is underestimating the risk emanating from China.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc AAPL, 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 positive in SPDR S&P 500 ETF Trust 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 🔒 in the early trade. To see the locked content, please click here to start a free trial.

Gold

The momo crowd is buying gold in the early trade. Smart money is 🔒 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 🔒 oil 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 range bound.

Markets

Our very, very short-term early stock market indicator is 🔒.  Keep in mind two important factors today.  First, today is the last day of the quarter, and the last day of the quarter has many cross currents.  Second, today is a Friday, and short squeezes tend to occur on Fridays.  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.

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.