Jobs Report Boosts December Fed Rate Hike Bets

Capitulation Criteria 

Please click here for an enlarged chart of Direxion Daily Semiconductor Bull 3X ETF (NYSE:SOXL).

Note the following:

• Semiconductors reflect the AI trade, and SOXL is the momo crowd’s favorite.
• The chart shows SOXL fell 38.7% yesterday.  In our analysis, over 50% of the drop in SOXL was due to forced selling in momo crowd accounts prompted by margin calls.  
• The chart shows SOXL has fallen 86.5% since its high in June.  Imagine those who listened to momo gurus in the media calling for their followers to go all in on SOXL.   There is anecdotal evidence of many in the momo crowd selling other stocks to go all in in SOXL.  An investor buying $1M of SOXL at the top would now have $135K left.
• Our call has been for a 30% – 50% drawdown in aggressive AI stocks.  That call was made when there was uber bullishness in AI stocks and nobody else was talking about such a big draw down. 
• Yesterday started many bullish gurus throwing in the towel on semiconductors and issuing sell signals on semiconductors, while giving buy signals on the rest of the market.  It is kind of like closing the barn door after the horses have bolted.
• The chart shows SOXL touched the top band of zone 4 (support).
• The chart shows a new divergence is developing in RSI.  In plain English, this means the SOXL price is now much lower compared to when RSI shown on the chart hit its low, but RSI is now much higher.
• A series of two RSI divergences shown on the chart is an indication that supports capitulation.
• The chart shows the volume yesterday was very heavy.  Very heavy volume is an indication of capitulation.
• Now, 75% of the criteria for capitulation in semiconductors is met.  Here are the important points:
  • The 75% applies ONLY to semiconductors.  It does not apply to the rest of the market.   
  • Investors in the rest of the market are showing great complacency.  Great complacency means there is significant room to the downside.   
  • If the rest of the market craters, it can pull down semiconductors.  
• Prudent investors should note that momo gurus do not use stops and do not give position sizes.   As SOXL fell, momo gurus continued to urge their followers to buy SOXL. Finally, yesterday momo gurus were sheepish and threw in the towel calling for their followers to sell SOXL.   This is one of the indications of capitulation.
• Of note is we have given buy signals to start trade around positions on semiconductors taking advantage of the big drop.  A trade around position is a technique used by billionaires and hedge funds that can dramatically increase profits and reduce risk. 
• Smart money often does the opposite of momo gurus at inflection points.  
• Prudent investors should note that the jobs report just released is a shocker.  The jobs report had the potential to negate the developing capitulation in semiconductors.  The wisdom on Wall Street yesterday in the face of semiconductor rout was that a rate hike in December was off the table.  In The our analysis, the jobs report puts a rate hike back on the table.  Here are the details of the jobs report:
  • Headlines nonfarm payrolls came at 165K vs 65K consensus.
  • Private nonfarm payrolls came at 159K vs 50K consensus.
  • Average hourly came at 0.4% vs 0.3% consensus.
  • Unemployment came at 4.1% vs 4.2% consensus.
  • Average work week came at 34.4 vs. 34.4 consensus.
• Markets always have crosscurrents.  After the rout in semiconductors and the jobs report shocker combined with positive seasonality, the crosscurrents are now significantly more severe than normal.  At this time, it is important to not get carried away by permabears or permabulls who dominate the media.  Consider making decisions driven by hard data.

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  For this reason, it is important to pay attention to early money flows in the Mag 7 stocks on a daily basis. 

In the early trade, money flows are positive in NVIDIA Corp (NASDAQ:NVDA) and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are neutral in Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), and Meta Platforms Inc (NASDAQ:META).

In the early trade, money flows are negative in Apple Inc (NASDAQ:AAPL) and Microsoft Corp (NASDAQ:MSFT).

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

Bitcoin

Bitcoin (CRYPTO: BTC) is seeing selling.

What To Do Now

Consider continuing to hold good, very long term, existing positions and add tactical positions based on signals.

The Arora Report is known for its accurate calls. Most recently, we correctly called the rally from recent stock market lows and the 2026 semiconductor decline before a 25% drop in the Semiconductor ETF (SMH). In gold, we bought at an average price near $1,105, close to cycle lows, and took partial profits near $5,400, close to cycle highs. Please click here to get our free forever Generate Wealth Newsletter.

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.