Hotter Producer Inflation And Declining Retail Sales – Momo Crowd In La La Land, Oil Deficit Prediction

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

Hotter PPI

Please click here for an enlarged version of the 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 staying above the trendline.
• As long as the stock market stays above the trendline, the momo crowd is going to continue to buy stocks.
• The data just released shows that the momo crowd is in AI la la land and paying no attention to the data. 
• The Arora Report has been heavily focused on AI, and as a result, Arora portfolios have done extremely well. Having said that, prudent investors need to understand that when it is all said and done, AI has to prosper in the real world and not in a make believe artificial world.  Right now, the momo crowd is in AI la la land. 
• Producer Price Index (PPI) shows that inflation is running hotter at the producer level than expected. Here are the details:
  • Headline PPI came at 0.6% vs. 0.3% consensus.
  • Core PPI came at 0.3% vs. 0.2% consensus.
• PPI feeds directly into PCE, which is the Fed’s favorite inflation gauge. The data released today shows that the Fed needs to be very careful before cutting rates.
• As The Arora Report had correctly predicted, consumer spending is beginning to weaken. The U.S. economy is 70% consumer based. For this reason, prudent investors pay attention to retail sales. Here is the latest retail sales data.
  • Headline retail sales came at 0.6% vs. 0.7% consensus.
  • Retail sales ex-auto came at 0.3% vs. 0.5% consensus.
• Initial jobless claims came at 209K vs. 218K consensus. Initial jobless claims 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.  Most models on Wall Street are static. They work for a while and then stop working when market conditions change. The latest initial jobless claims data indicates that labor conditions continue to be tight. The Arora Report analysis is that labor conditions are tight on the low end but weakness is developing at the high end, especially in IT and finance.
• The protection band may need to be adjusted please see the section below titled “Protection Band And What To Do Now.”
• 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.

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, and Microsoft Corp MSFT.

In the early trade, money flows are negative in Tesla Inc TSLA. and NVIDIA Corp NVDA.

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 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.

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

Oil

The International Energy Agency (IEA) has concluded that oil will face a supply deficit throughout 2024. Previously a surplus was expected.  

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 range bound.

Protection Band And What To Do Now

Investors may consider moving to a slightly more defensive position within the protection band.  The protection band may need to be adjusted if the momo crowd starts losing control of the market.  

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.