By Nigam Arora & Dr. Natasha Arora

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

Ignore At Your Own Peril

Please click here for a chart of market yield on U. S. 10-year Treasuries at constant maturity less Consumer Price Index ex food and energy.

Note the following:

  • Start with Arora’s Second Law of Investing: Nobody knows with certainty what is going to happen next in the markets.
  • Prudent investors analyze various potential scenarios in advance.
  • The reckless money printing by the Fed and borrowing by Biden have created several realistic scenarios for the future.
  • One of the scenarios is the present thinking by investors and our leaders that money printing and borrowing is a free lunch turns out to be wrong.
  • Take a few minutes to study the chart.
  • Compare the present to 1980.
  • Ignore 1975 because that was due to an OPEC oil embargo.
  • See from the chart how high interest rates went after 1980.
  • At that time the Fed Chair Paul Volcker was able to raise interest rates significantly because the federal debt was nowhere near as high as it is now.
  • In 1980 stock valuations were very low compared to where they are now.
  • Serious investors should make a point of carefully listening to the podcast The Dirty Secret of the President and the Fed Chair That You Need to Know. Due to the importance of investors understanding the monetary and fiscal policies, we are planning a number of podcasts to help investors.
  • If the Fed loses control, the stock market can easily lose one-half of its value.  Momo’s favorite stocks can easily lose 80 – 90% of their value.
  • The Fed is about to change its posture.  We will find out soon if Powell has the spine to do what needs to be done.
  • Consider paying close attention to the Morning and Afternoon Capsules when they discuss the Fed and monetary policy.
  • The best course for investors is to not react now but pay close attention on a daily basis so that they stay in tune with what is going on based on real data and not on preconceived notions.
  • The Fed will announce its policy at 2:00 pm ET.  Powell’s press conference will start at 2:30 pm.

Retail Sales

November Retail Sales ex-auto came at 0.3% vs. 0.9% consensus. This indicates that without Biden’s free money, spending by consumers is petering out. This is a red flag for a large number of momos’ favorite stocks.

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 🔒.

Gold

The momo crowd is🔒. Smart money is 🔒.

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

Oil

API showed inventory draw of 815K barrel vs. 2.6M barrels consensus. This data is bearish.

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

For longer-term, please see oil ratings.

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 up and bonds are ticking down.

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 $1770, silver futures are at $21.82, and oil futures are at $70.23.

S&P 500 futures resistance levels are 4713, 4770, and 4900: support levels are 4600, 4460, and 4400. 

DJIA futures are down 24 points.

Protection Bands and What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or short-term bond funds 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.

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.

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This post was just published on ZYX Buy Change Alert.

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Nigam Arora

Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.