Buying In The Stock Market On Tamer Producer Price Index (PPI) And European Central Bank (ECB) Signal

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

Buying In The Stock Market

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 decisively below the trendline.
• The chart shows that the stock market is stabilizing at the level where it fell yesterday after the release of hotter Consumer Price Index (CPI).
• Stock futures were down before the release of Producer Price Index (PPI). Stock futures jumped on the release of PPI data.
• PPI came tamer than expected.  Here are the details:
  • Headline PPI came at 0.2% vs. 0.3% consensus.
  • Core PPI came at 0.2% vs. 0.2% consensus.
• In The Arora Report analysis, PPI is more well behaved compared to CPI because PPI is mostly goods oriented. Cheaper goods from China are flooding the market. Of note is that inflation is going the other way in China compared to the U.S. Here is the latest data from China:
  • CPI came at 0.1% vs. 0.1% consensus.
  • PPI came at 0.1% vs. 0.1% consensus.
• Weekly initial claims came at 211K vs. 218K consensus. This indicates that the jobs picture is remaining strong.
• Statistically, yesterday’s fall of 1% in S&P 500 was the fifth such fall in 2024. In the prior instances in 2024, S&P 500 gained an average of 1% the following day. Those who buy based on statistics are aggressively buying stocks.

Europe

The European Central Bank (ECB) is keeping its key interest rate at 4%, in line with consensus. ECB is preparing to cut rates in June.  This is helping to bring buying into the stock market.

It is likely that the paths of the ECB and the Fed are diverging.

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 mixed in 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.

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 momo crowd is selling 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 seeing aggressive buying. Bitcoin is above $70,000.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

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.