Bank Of America Contradicts Consumer Weakness, Stock Buying On PPI, Important Semiconductor Data

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

Data On Consumer

Please click here for an enlarged chart of Bank of America Corp BAC.

Note the following:

• This article is about the big picture, not an individual stock.  The chart of BAC stock is being used to illustrate the point.
• The chart shows that the recent attempt from BAC stock to breakout failed.
• The chart shows BAC has pulled back.
• RSI on the chart shows that BAC stock is now oversold and has the potential to rally.
• Investors should watch the chart of BAC stock. If BAC stock rallies and breaks out, it will be a positive tell for the entire stock market. 
• As full disclosure, BAC is in our ZYX Buy Core Model Portfolio, long from $7.69.
• Bank of America is important because it is the second largest bank in the U.S.  Bank of America reported earnings better than the consensus and whisper numbers.
• The U.S. economy is 70% consumer based.  Therefore, the status of the consumer is important for investors.  We have been sharing with you several pieces of data that show the consumer is weakening, especially at the low end.  The Bank of America is contradicting other data.  CEO Brian Moynihan said, "consumers remained resilient, with healthy spending and asset quality, and commercial borrower utilization rates rose."
• The just released Producer Price Index (PPI) shows inflation cooler than expected at the producer level.  Here are the details:
  • Headline PPI came at 0.0% vs. 0.2% consensus.
  • Core PPI came at 0.0% vs. 0.2% consensus.
• Buying is coming into the stock market on cooler PPI data.
• Yesterday, the 30-year bond yield was hitting 5%.  If the yield would have continued to rise this morning, it would have dampened the extreme bullishness in the stock market.  However, the yield is pulling back on cooler PPI.  
• The stock market is ignoring it for the time being but investors should pay attention to earnings from ASML Holding NV (ASML).  In many ways, ASML, a Dutch company, is the most important semiconductor company.  Without extreme ultraviolet lithography machines from ASML, the advanced semiconductors from NVIDIA Corp (NVDA), and in turn artificial intelligence, would not be possible.  ASML reported better than consensus earnings but issued downside guidance.  The stock is down about 8% as of this writing.  The company said, "Looking at 2026, we see that our AI customers’ fundamentals remain strong. At the same time, we continue to see increasing uncertainty driven by macro-economic and geopolitical developments. Therefore, while we still prepare for growth in 2026, we cannot confirm it at this stage. We expect third-quarter total net sales between €7.4 billion and €7.9 billion, with a gross margin between 50% and 52%."
• The Fed's Beige Book will be released at 2pm ET.
• Retail sales and initial jobless claims data will be released tomorrow at 8:30am ET.

China

The economic data from China is better than expected.  Here are the details:

• Q2 GDP came at 1.1% quarter-over-quarter vs. 0.9% consensus; 5.3% year-to-date vs. 5% consensus.
• Industrial production came at 6.8% year-over-year vs. 5.6% consensus.

Magnificent Seven Money Flows

In the early trade, money flows are positive in NVDA, Apple Inc (AAPL),  Alphabet Inc Class C (GOOG), Meta Platforms Inc (META), 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 SPDR S&P 500 ETF Trust (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).

Oil

API crude inventories came at a build of 19.1M barrels vs. a consensus of a draw of 2M barrels.  This data is very bearish for oil.

Bitcoin

Bitcoin is seeing buying today on President Trump twisting arms to pass the crypto bills.

Arora Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  Our proprietary Protection Band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.

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.