Mother Of All Reports Disappoints Both Bulls And Bears – Critical Waller Remarks Ahead

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

Critical Waller Remarks Ahead

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 formed a double top inside the resistance zone and was unable to penetrate the resistance zone.  From a technical perspective, this is a negative.
• The chart shows that the stock market has fallen below the resistance zone.
• RSI on the chart shows that the stock market is oversold.  Oversold markets tend to bounce.  This is exactly what is happening in the early trade.  In the early trade, almost all of the buying is from the momo crowd. Smart money is waiting for remarks from Fed Governor Waller.
• Critical remarks from Fed Governor Waller are ahead after the jobs report.  Waller will speak at 11 am ET.  It appears that the reason Waller remarks are scheduled at this time is to give Waller time to consult with Powell and other Fed members and provide the market with some guidance.
• Waller's remarks will determine the near term market direction.   
• In The Arora Report analysis, the jobs report, also known as the mother of all reports due to its importance, has disappointed both bulls and bears.  The reason is because the data is such a mixture it does not fit anyone's narrative.  Here are the details:
  • Nonfarm payrolls came at 142K vs. 165K consensus.
  • Nonfarm private payrolls came at 118K vs. 142K consensus.
  • Average hourly earnings came at 0.4% vs. 0.3% consensus.
  • Average work week came at 34.3 hours vs. 34.3 hours consensus.
  • Unemployment rate came at 4.2% vs. 4.2% consensus.
• This jobs report makes the Fed's job difficult as the data does not clearly support either of the two Fed scenarios – 25 bps cut or 50 bps cut.
• ISM Non-Manufacturing Index came at 51.5% vs. 51% consensus.  This stronger than expected data has helped the stock market.
• Prudent investors should note the yen is rallying after the jobs report.  This increases the risk to the carry trade and in turn, to the U.S. stock market.
• The momo crowd was pinning its hopes on Broadcom Inc AVGO earnings to kickstart another leg of the AI stock rally.  Broadcom is a major chip supplier including custom AI chips for hyperscalers.
  • Broadcom met expectations for AI chips.
  • Broadcom's traditional business did not meet expectations.
  • Overall Broadcom earnings are significantly less than whisper numbers.  This is a negative for AI stocks.  However, note that technically, AI stocks are oversold, and oversold stocks tend to bounce.
• Bonds initially rallied after the jobs report.  In The Arora Report analysis, there is likely to be a rethink in the bond market.  If this rethink happens, the bond market will give up its gains.  

Magnificent Seven Money Flows

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

In the early trade, money flows are neutral in Amazon.com, Inc. AMZN and Microsoft Corp MSFT.

In the early trade, money flows are positive in SPY and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust GLD.  The most popular ETF for silver is iShares Silver Trust SLV.  The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is seeing buying after the jobs report along with junk stocks.

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 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 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.