Be Judicious – Salesforce and Figma Show Over Enthusiasm, Job Seekers Exceed Jobs Available

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

Extreme Positive Sentiment 

Please click here for a chart of Figma Inc (NYSE:FIG).

Note the following:

• This article is about the big picture, not an individual stock.  The chart of FIG stock is being used to illustrate the point.
• The chart shows Figma's IPO on July 31.  The IPO was priced at $33.
• The chart shows the FIG stock reached its all time high of $142.92 on the second day of trading.
• The chart shows the fall in FIG stock since its all time high.
• The chart shows the drop after Figma reported earnings yesterday.  Figma earnings were below whisper numbers.  FIG stock is down 14.23%, trading at $58.50 as of this writing in the premarket.
• Figma earnings and the chart show the enthusiasm for IPOs is overdone. In our analysis, enthusiasm for IPOs is a symptom of extreme positive sentiment and high liquidity.  
  • Liquidity is about to go even higher if the Fed cuts interest rates.
  • Liquidity is also increasing on government borrowing and spending. 
• As another example of over enthusiasm, the popular software company Salesforce Inc (CRM) reported earnings below whisper numbers.  CRM stock is down 6.11%, trading at $240.73 as of this writing in the premarket.  Salesforce is receiving only middling success with its Agentforce.   Even Salesforce itself has replaced 4,000 customer service employees with AI.  Salesforce is not yet generating revenues at a high rate from AI like other software companies such as Microsoft Corp (MSFT).
• JOLTS job openings released yesterday came at 7.181M vs. 7.38M consensus.  Unemployment came at 7.24M.  Job seekers now exceed the number of job openings.  This is a first since April 2021.  The data provides fuel for the Fed to cut rates at the September meeting.   
• In a sign of the times, in spite of President Trump's "drill baby drill," major oil company ConocoPhillips (COP) is going to lay off 25% of its workforce.
• ADP is the largest private payroll processor in the country.  ADP uses its data to provide a glimpse of the jobs pictures ahead of the official jobs report.  The just released ADP data shows that the jobs picture is weakening.  ADP Employment Change came at 54K vs. 69K consensus.
• Initial jobless claims came at 237K vs. 232K consensus.  This data shows the jobs picture is staying strong.  This also illustrates the crosscurrents and conflicts between various pieces of data.  It is important to not depend on momo gurus, especially in view of the conflicting data – momo gurus exaggerate the positive data and ignore the negative data in the pursuit of their job to run up the stock market.
• The mother of all reports, the official jobs report will be released tomorrow at 8:30am ET.
• Of special importance to the AI trade will be earnings from Broadcom Inc (AVGO) to be released after the regular session close.
• President Trump is going to the Supreme Court in an effort to overturn the appeals court decision on tariffs.  In our analysis, the probability is high that the Supreme Court will rule in favor of President Trump.  Further, in our analysis, even if the Supreme Court does not rule in President Trump's favor, there are many other alternatives available to President Trump to keep tariffs in place.  
• The data has clearly indicated that it is time for investors to be judicious and not blindly chase momentum.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Meta (META), and Tesla (TSLA).

In the early trade, money flows are neutral in Nvidia (NVDA) and Microsoft (MSFT).

In the early trade, money flows are negative in Apple (AAPL) and Alphabet (GOOG).

In the early trade, money flows are positive in S&P 500 ETF (SPY) and Nasdaq 100 ETF (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).

Gold

India bought 39 tonnes of gold and reduced U.S. Treasury holdings from $242B to $227B. 

Oil

API crude inventories came at a build of 0.622M barrels vs. a consensus of a draw of 3.4M barrels.

Bitcoin

Bitcoin is range bound.

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.