Extremely Positive Sentiment On Lower PPI, Higher Jobless Claims, Musk Claim, And Broadcom Split

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

Lower PPI

Please click here for an enlarged 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 took another leg up on Consumer Price Index (CPI) data yesterday. Please click here for details.
• The chart shows that after the Fed announcement, the stock market pulled back as the dot plot was more hawkish than expected. Please see click here for details.
• The chart shows that the stock market first jumped this morning on release of Producer Price Index (PPI) and jobless claims data.
• RSI on the chart shows that the stock market is very overbought. Overbought markets tend to be susceptible to a pullback.
• The chart shows that the volume was higher yesterday than other recent low volume days, but the volume was not high enough considering the strong rally. This is a negative.
• Inflation at the producer level came cooler than expected. Here are the details:
  • Headline PPI came at -0.2% vs. 0.1% consensus.
  • Core PPI came at 0.0% vs. 0.3% consensus.
• In The Arora Report analysis, a big part of the drop in PPI is because of the following reasons:
  • We have been sharing with readers that producer prices in China have been dropping. Since the U.S. imports a large amount of goods from China, China is exporting disflation to the U.S.
  • Oil prices have fallen due to concerns about a weak economy. Oil contributes significantly to PPI.
• Weekly initial claims came at 242K vs. 224K consensus. This indicates that the jobs picture is weakening.  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. Please click here to see how this is achieved.
• The sentiment is extremely positive in addition to CPI, PPI, and jobless claims.  The following are adding to the positive sentiment.
  • Elon Musk is claiming that shareholders voted for his pay package. Tesla Inc TSLA stock is jumping about 7% as of this writing in the premarket.
  • Semiconductor company Broadcom Inc AVGO reported AI revenues better than the consensus but inline with whisper numbers. The company also declared a 10 for 1 split just like NVIDIA Corp NVDA. AVGO has jumped over 13% as of this writing in the premarket.
• If it were not for the extremely positive sentiment, the stock market should be down based on the hawkish dot plot from the Fed. In The Arora Report analysis, there are two factors that are leading to the stock market ignoring the Fed.
  • The AI frenzy is simply too powerful.
  • Momo gurus have declared that they know better than the Fed. Momo gurus’ job is to run up the stock market, and they have legions of followers.
• Sentiment is extremely positive. Extremely positive sentiment is a contrary signal.  In plain English, when sentiment is extremely positive, it is a sell signal, not a buy signal. As a reminder, sentiment is not a precise timing indicator.
  • The Arora Report rule is to buy aggressively when sentiment is extremely negative and be cautious when sentiment is extremely positive.  

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc AAPL, NVDA, and TSLA.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, and Microsoft Corp MSFT.

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (SPY) 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.

Note for new investors: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.

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 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 seeing buying on economic data.

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 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.