Jobs Rocket Past Estimates, Be Careful Listening To Stock Market Permabulls

Hot Jobs Report

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

Note the following:

• The chart shows that the stock market has broken below the upward sloping trendline.
• The chart shows that was a perfect setup for the stock market to drop yesterday when Israel went on high alert due to the prospect of Iranian retaliation.  
• As is their pattern, the momo crowd was buying stocks this morning ahead of the mother of all numbers, the jobs report, on hope strategy.
• Jobs report came much hotter than expected. Here are the details:
  • Non-farm payrolls came at 303K vs 200K consensus.  This indicates that the economy is strong and a large number of new jobs are being created.  The vast majority of these jobs are at the low end such as in hospitality. Jobs remain weak in information technology as more workers are replaced by AI.
  • Nonfarm private payrolls came at 232K vs 160K consensus.  This indicates that there is no need to cut interest rates at this time.
  • Unemployment rate came at 3.8% vs 3.8% consensus.  The unemployment rate remains low.
  • Average hourly earnings came at 0.3% vs 0.3% consensus.  This indicates that reducing inflation from here will be difficult.
  • Average work week came at 34.4 vs 34.3 consensus.
• The stock market briefly lost the gains but the momo crowd aggressively bought the dip.
• In The Arora Report analysis, the hot jobs report is reducing the probability of rate cuts starting in June.  Keep in mind that momo gurus claim to know for sure that rate cuts will start in June.  You may remember that the same momo gurus knew for sure that there would be six rate cuts this year starting in March.  Clearly, momo gurus have been wrong.  However, prudent investors need to understand that momo gurus are often wrong because they are not driven by objective analysis.  Their job is to persuade investors to buy stocks in the disguise of analysis.  To fulfill their job, they must be permabulls.  Consider not listening to permabulls or permabears.
  • Prudent investors should start with Arora’s Second Law of Investing and Trading: “Nobody knows with certainty what is going to happen next in the markets.”  Follow with Arora’s Third Law, which states, “Making investing and trading decisions based on probabilities is the only realistic and profitable approach.”
• In The Arora Report analysis, the probability of a rate cut in June is now down to about 50% based on the data so far.  However, investors need to keep two facts in mind:
  • There is plenty of data between now and June that can change the course.
  • Powell is clearly itching to cut rates.  It is not clear what Powell’s motivation is.  Some conservative analysts believe that Powell wants to cut rates to help Biden get reelected.  Trump has stated that he will not reappoint Powell.

Magnificent Seven Money Flows

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

In the early trade, money flows are negative in Alphabet Inc Class C GOOG and Tesla Inc TSLA.

In the early trade, money flows are positive in SPY and Invesco QQQ Trust Series 1 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

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 GLD.  The most popular ETF for silver is iShares Silver Trust SLV.

Oil

The momo crowd is inactive 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 USO.

Bitcoin

Bitcoin BTC/USD is range bound.

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.