Powell Rally Vanishes, Qualcomm Heightens Apple Concern, Mother Of All Reports Ahead

Author: The Arora Report | May 02, 2024 12:50pm

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

Key Events Ahead

Please click here for an enlarged chart of SPDR S&P 500 ETF Trust (NYSE:SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The chart shows the steep rally that started on Powell’s press conference.
• Yesterday, we wrote:

If political Powell shows up, expect a rip roaring rally.

• Three groups of investors were buying.
  • Investors driven by macro bought on the belief that Powell gave an all clear signal for buying stocks.
  • Investors who follow traditional technical analysis aggressively bought because a technical buy signal triggered.
  • The momo crowd was buying because dovish Powell showed up.
• The chart shows that at the peak of the rally when buying was very aggressive, The Arora Report took a contrary view and wrote in the Afternoon Capsule:

In The Arora Report analysis, there may be a re-think of the stock market rally as Powell was not able to support his dovishness with data or compelling argument.

• The chart shows that The Arora Report call has proven prescient as all of the stock market rally was given back.
• Two key events are ahead:
  • Apple Inc (NASDAQ:AAPL) earnings
  • Jobs report, also known as the mother of all reports
• The momo crowd’s pattern is to buy ahead of key events. The reason is that the momo crowd buys on hopium and does not take risk into account. Today is no different. The momo crowd is aggressively buying ahead of Apple earnings and the mother of all reports. In contrast, smart money knows that key events present risk.  To reduce risk, smart money tends to trim ahead of key events.
• Apple will report earnings after the market close.  Here are the key points:
  • Analysts expect about a 5% drop in Apple revenues.
  • If analysts are right, this will be the fifth of the last six quarters with a drop in Apple revenues.
  • We have been sharing with you the problems Apple is facing in China.
  • Qualcomm Inc (NASDAQ:QCOM) owns patents on key technologies that power today’s smartphones, including iPhones. As full disclosure, QCOM is in The Arora Report's ZYX Buy Model Portfolio.  QCOM long from $47.13.  Apple is a key Qualcomm customer.  QCOM data shows that it generated great revenues in China.  The implication here is that other companies such as Huawei are taking significant market share from Apple as Chinese switch away from iPhones.  
  • As full disclosure, AAPL is in The Arora Report's ZYX Buy Model Portfolio.  AAPL is long from $4.68.  
  • Apple earnings are very important.  Risks to Apple are also very important.  Institutions are selling AAPL stock.  It is important to become knowledgeable about Apple.  
• The jobs report will be released at 8:30am ET tomorrow.
• Initial jobless claims came at 208K vs. 213K consensus. This indicates that the employment picture remains strong.
• Q1 Productivity-Prel came at 0.3% vs. 0.8% consensus.   This indicates that AI has not become as pervasive in the workplace as some prior data indicated.
• Q1 unit labor costs-Prel came at 4.7% vs. 2.5% consensus.  This indicates that taming inflation is a challenge.

Magnificent Seven Money Flows

In the early trade, money flows are positive in AAPL, Amazon.com, Inc. (NASDAQ:AMZN), Meta Platforms Inc (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT), NVIDIA Corp (NASDAQ:NVDA), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are neutral in Alphabet Inc Class C (NASDAQ:GOOG).

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ).

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively buying stocks in the early trade.  Smart money is inactive in the early trade.

Gold

As we are ready to publish this post, all of a sudden, significant selling is coming in gold.

The momo crowd is buying gold in the early trade. Smart money is inactive in the early trade.

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

The most popular ETF for gold is SPDR Gold Trust (NYSE:GLD). The most popular ETF for silver is iShares Silver Trust (NYSE:SLV). 

Oil

As we are ready to publish this post, all of a sudden, significant selling is coming in oil.

The momo crowd is buying oil in the early trade.  Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF (NYSE:USO).

Bitcoin

Bitcoin (CRYPTO: BTC) is seeing buying on dovish Powell.

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.

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.

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.

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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