DON’T IGNORE CHINA RISK IF YOU ARE CAUGHT UP IN AI FRENZY, EUPHORIA BUILDS ON COOLER CPI, $2400 GOLD

By?Nigam Arora?& Dr. Natasha Arora

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

Cooler CPI

Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The chart shows that the stock market is making a new high.
• The chart shows that the new high is on low volume, indicating a lack of conviction.
• The chart shows the stock market running up after the release of Consumer Price Index (CPI).? Futures were negative before the release of CPI but moved higher after the release of CPI.
• CPI data is cooler than expected. Here are the details:
• -- Headline CPI came at -0.1% vs. 0.1% consensus.? This is the lowest since 2020.
• -- Core CPI came at 0.1% vs. 0.2% consensus.
• Initial jobless claims came at 222K vs. 234K consensus. This indicates that the economy is staying strong.? 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.? One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model.? Most models on Wall Street are static.? They work for a while and then stop working when market conditions change.
• In The Arora Report analysis, the probability of a rate cut in July is 40%.? The probability of a rate cut in September is now 75%.??
• In The Arora Report analysis, prudent investors need to be aware of two risks in the face of extreme bullish sentiment:
• -- A rate cut can lead to euphoria.? If euphoria occurs, prudent investors will need to be more tactical and enter more short term trades as euphorias tend to end in crashes.??
• -- Prudent investors also need to be cognizant of a possible ‘sell the news’ reaction.? Investors have been running up the stock market on hopes of a rate cut.? There is a fair probability that smart money may start selling on a rate cut to lock in the gains.?
• Earnings season starts today.
• -- Conagra (CAG), Pepsi (PEP), and Delta (DAL) kicked off earnings season.? Taken together, earnings, revenues, and projections, are below whisper numbers for all three.
• -- Tomorrow will bring important bank earnings from JP Morgan (JPM), Citigroup (C), and Wells Fargo (WFC).? Expectations are very high.
• -- An important earning tomorrow is from Fastenal (FAST).? Fastenal earnings are a good indication of spending on construction and infrastructure.
• Producer Price Index (PPI) will be released tomorrow at 8:30am ET.? Investors will use PPI as confirmation of falling inflation.
• University of Michigan consumer sentiment will be released tomorrow at 10am ET. ? Consumer sentiment is important because for about 80% of consumers, liquidity has dried up.
• As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents. ? Please scroll down to see the protection band. The protection band is one of the large number of unique edges that are available to members of The Arora Report.

See also? STOCK MARKET CELEBRATES COOLER CPI, OIL GLUT BY THE END OF THE DECADE

China

Yesterday, we shared with you that the momo crowd was aggressively buying Taiwan Semiconductor stock (TSM) on AI euphoria, oblivious to the China risk.? Prudent investors need to be aware that China just sent 56 aircraft, the most ever, across a key boundary line with Taiwan.? The purpose seems to be to intimidate Taiwan into submission and warn the U.S. of China’s military might.??

China has put in place more short selling restrictions to help the Chinese stock market run up.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Nvidia (NVDA), Microsoft (MSFT), Tesla (TSLA), and Amazon (AMZN).

In the early trade, money flows are negative in Apple (AAPL), Meta (META), 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

The momo crowd is *** (To see the locked content, please take a 30 day free trial) stocks in the early trade.? Smart money is *** in the early trade.

Note for new members: 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

Gold futures have moved above 2400.? There is aggressive buying in silver.

The momo crowd is *** gold in the early trade.? Smart money is *** in the early trade.

See also? AI STOCKS SHOW ASYMMETRY ON EXPECTATIONS PROVING TOO HIGH, WALL STREET PREPS FOR PRESIDENTIAL DEBATE

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is *** in the early trade.? Smart money is *** in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin (BTC.USD) is seeing buying after the release of CPI.

Markets

Our very, very short-term early stock market indicator is ***.? This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down, and bonds are ticking up.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $2419, silver futures are at $31.80, and oil futures are at $82.34.

S&P 500 futures are trading at 5689 as of this writing.? S&P 500 futures resistance levels are 5748 and 5926: support levels are 5622, 5500, and 5400.

DJIA futures are up 29 points.

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 holding *** in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of ***, and short term hedges of ***. 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.

See also? BUYING ON POWELL TESTIMONY, INTEL BECOMES A FAVORITE AI PLAY BUT CHART HAS A LESSON FOR AI BULLS

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.

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