Priced For Perfection – Stock Market To Face Most Critical Two Days, Fed Rate Decision, META and MSFT Earnings Ahead

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

Priced For Perfection

Please click here for an enlarged chart of Meta Platforms Inc META.

Note the following:

• This article is about the big picture, not an individual stock.  The chart of META stock is being used to illustrate the point.
• The chart shows META stock has fallen below zone 1 (resistance).
• The chart shows that META is now consolidating below zone 1.
• The chart shows zone 2 (support) is a ways off.
• RSI on the chart shows META stock is neither overbought nor oversold.
• The stock market is priced for perfection, with the most critical two days ahead.  Today, Meta and Microsoft Corp (MSFT) will report earnings after the regular session close, and the FOMC will announce its rate decision.  Tomorrow, Apple Inc (AAPL) and Amazon.com, Inc. (AMZN) report earnings after the regular session close.
• Whisper numbers for Meta earnings are higher than the consensus numbers.  Whisper numbers are the numbers analysts privately share with their best clients.  Whisper numbers are often different from consensus numbers published by the same analysts for public consumption.  Analysts typically provide whisper numbers only to their best clients, and not the public.
• The stock market is expecting META stock to break above zone 1 after earnings.  If META stock does not break above zone 1, that will be a disappointment to bulls.
• As full disclosure, META is in our portfolio.
• Whisper numbers are also higher than consensus for Microsoft.  Please see Monday's Morning Capsule for a chart of MSFT stock.
• The FOMC rate decision will be announced today at 2pm ET, followed by a press conference with Fed Chair Powell at 2:30pm ET.   The consensus is for no change.
• Powell may not succeed in getting a unanimous decision this time.  There is a high probability that two Trump appointees Waller and Bowman may dissent.
• ADP is the largest private payroll processor in the country.  ADP uses its data to provide a glimpse of the jobs picture ahead of the official jobs report.  ADP employment change came at 104K vs. 78K consensus.  The data shows the employment picture is staying strong.
• Just released GDP data came very strong.  Here are the details:
  • Q2 GDP-Adv. came at 3.0% vs. 2.5% consensus.
  • GDP Deflator-Adv. came at 2.0% vs. 2.6% consensus.
• In our analysis, the strong GDP number is, in part, due to a pull forward related to tariffs.  As such, the strong GDP number does not reflect a 3% growth in the economy when the immediate impact of tariffs is taken out.  
• The highly anticipated Treasury quarterly refunding plan has just been released.  There are no surprises.
• Additional economic data will be released later this week.
  • PCE (the Fed's favorite inflation gauge), personal income, personal spending, and initial jobless claims will be released at 8:30am ET tomorrow.
  • The official jobs report will be released Friday at 8:30am ET.
  • ISM Manufacturing Index and University of Michigan Consumer Sentiment will be released Friday at 10am ET.
• There is optimism in the stock market from President Trump's statement that he could meet with President Xi of China by the end of the year.

Opportunity In India

President Trump says India will face 25% tariffs starting August 1.  President Trump's reason appears to be India buying cheap oil from Russia as well as armaments.  Expectations were that India would at least succeed with President Trump and have tariffs no higher than 19%.  India was hoping for tariffs of 15%.

If the Indian stock market drops on this news, the drop will be a buying opportunity.  As full disclosure, there are three India ETFs, including buy zones in our portfolio.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Meta (META), Microsoft (MSFT), and NVIDIA Corp (NVDA).

In the early trade, money flows are neutral in Apple (AAPL), Amazon (AMZN), Alphabet Inc Class C (GOOG), and Tesla Inc (TSLA).

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

Oil has moved up on President Trump's comment that he will impose secondary sanctions on Russia if the war with Ukraine is not stopped by the deadline 10 days from now. 

API crude inventories came at a build of 1.539M barrels vs. a consensus of a draw of 2.5M barrels.

Bitcoin

Bitcoin is range bound.

Our Protection Band And What To Do Now

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.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.

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