WEEKLY STOCK MARKET DIGEST: CHINA DECLARES BITCOIN ILLEGAL, FED DRIVING MOMO STOCK BUYING

By Nigam Arora & Dr. Natasha Arora

Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report

Please scroll down for the section ‘Protection Bands and What To Do Now.’

CHINA DECLARES CRYPTOCURRENCIES ILLEGAL

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

China: Bitcoin Illegal

Please click here for a chart of bitcoin (BTC.USD).

Note the following:

  • We have been writing for a long time that there is significant merit to cryptocurrencies in the face of money printing and massive borrowing by governments. We have also been writing that the biggest danger to cryptocurrencies is that governments will not let them become very successful. The reason is that in theory governments are there to serve the people; in reality, some governments become instruments of the rich and powerful to control the people. Cryptocurrencies such as bitcoin take control away from the governments.
  • The People’s Bank of China (PBOC) has declared that all virtual currency-related business activities are illegal.
  • The chart shows the drop in bitcoin on the news.
  • In view of the normal volatility of bitcoin, the drop is minimal. Here are the reasons for the drop being minimal.
    • Many investors are thinking that this is just old news.
    • China officially banned trading cryptocurrencies in 2019.
    • Even after the ban, cryptocurrency trading has continued in China through online foreign exchanges.
    • In May 2021, China warned buyers that they would have no protection for continuing to trade cryptocurrencies online.
    • In June 2021, China told its banks and payment platforms to stop cryptocurrency transactions.
    • China also previously banned the mining of cryptocurrencies.
  • In our analysis, the assessment by crypto bulls that this is old news is wrong.  This is a major new adverse event.

Momo Crowd And Smart Money In Stocks

After a strong rally yesterday, the stock market is coming under pressure this morning.

Please click here for the chart published previously showing the resistance zone. For the sake of transparency, no change has been made to the chart.

Is this a normal pullback as the market approached the resistance zone or is the rally running out of steam?

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

Gold is falling due to the rise in interest rates.  Gold does not like rising interest rates.  Also, money was flowing out of gold and into stocks yesterday.   This often happens when there is a strong rally in the stock market after a dip.

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

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

Oil

China is releasing oil from its strategic reserves to bring down oil prices.  The momo crowd is oblivious which is often the case.

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 stronger.

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 $1744, silver futures are at $22.35, and oil futures are $72.87.

S&P 500 futures resistance levels are 4460, 4600, and 4900: support levels are 4400, 4318, and 4200.

DJIA futures are down 145 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.

OPTIMISM OVER CHINA INJECTING LIQUIDITY AND ORDERING EVERGRANDE

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

Optimism

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

Note the following:

  • China pumps additional liquidity of $17 billion into the system.
  • The markets are driven by liquidity.
  • China has apparently ordered Evergrande () to avoid default on bonds in the near term.  Evergrande is the second-largest property developer in China.
  • Stocks of property developers in China are jumping.
  • Money is also heavily flowing into tech stocks.
  • The chart shows that the resistance zone is nearby as the rally continues.
  • The chart shows RSI is giving a buy signal.
  • If the stock market can close above the resistance zone shown on the chart, it will be off to the races.

Digging Below The Surface

When we dig below the surface, Fed’s policy going forward may not be as dovish as the momo crowd thinks. The taper may potentially be a turbo taper.

There is a potential of up to eight rate hikes by 2024.

When the Fed’s posture is changing, long term investors need to be careful.  Of course in the short term, momo’s belief is intact – ‘stonks always go up.’

Jobless Claims

Weekly Initial Jobless Claims came at 351K vs. 317K consensus.

England

The Bank of England (BOE) is warning that consumer prices may rise above 4% this year.  BOE’s target is 2%.

BOE left its main interest rate unchanged at 0.1%.

The case for monetary tightening appears to be gaining momentum at BOE.

Momo Crowd And Smart Money In Stocks

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

Gold

Money is moving out of gold and into stocks.

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

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

Oil

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 $1762, silver futures are at $22.67, and oil futures are at $72.21.

S&P 500 futures resistance levels are 4460, 4600, and 4900: support levels are 4400, 4318, and 4200.

DJIA futures are up 206 points.

OPTIMISM OVER EVERGRANDE AND FED DRIVING MOMO STOCK BUYING

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

Evergrande

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

Note the following:

  • Evergrande () has reached an agreement with onshore bondholders to make an interest payment on Thursday.  There is no news on payment to offshore bondholders.
  • None of the foregoing resolves excesses by Evergrande and its potential impact, but momo is always looking for turning any news into an excuse for buying.
  • People’s Bank of China (PBOC) injected extra liquidity into the system and that is helping the Chinese stock market with optimism propagating to Europe and the U. S.
  • The Fed will announce its decision at 2:00 pm ET followed by Powell’s press conference at 2:30 pm ET.
  • There is speculation that the Fed may use the Evergrande situation as an excuse to keep on printing money and postpone the taper.
  • The chart shows that after breaking the channel, the stock market continues to trade below the channel in spite of the momo crowd’s aggressive buying.
  • The speculation is that today Powell will be extra-dovish resulting in the stock market pushing back into the channel.  That will cause technically oriented investors to jump back in causing the market to potentially go to new highs.

Momo Crowd And Smart Money In Stocks

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

Gold

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

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

Oil

API data showed a draw of 6.108M barrels vs. consensus of a draw of 2.40M barrels.

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 stronger.

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 $1774, silver futures are at $22.79, and oil futures are at $71.64.

S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

DJIA futures are up 188 points.

MOMO BUYS STOCKS ON HOPE OF RESCUE BY POWELL

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

Hopes Of Rescue

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

Note the following:

  • The Federal Open Market Committee (FOMC) is meeting today.
  • FOMC will announce its decision tomorrow at 2:00 pm ET followed by Powell press conference at 2:30 pm ET.
  • The chart shows Arora’s sell signal for a short term trade using inverse ETF  or short-selling .
  • The chart shows that the first target hit in four days.
  • The chart shows that the Arora signal was totally opposite of the infallible momo signal given by the momo crowd gurus.
  • The chart shows that on prior occasions, the market bounced after touching the lower band of the channel.  This is what made the momo crowd so confident.
  • When the momo’s gurus gave their infallible signal, we questioned that they were not thinking of the other side – what if the channel breaks.
  • The chart shows the channel broke and the momo’s gurus infallible signal was wrong.
  • Prudent investors take note that there is very important information about the momo crowd on display on the chart.  When they were proven wrong, instead of controlling the risk as professional investors do, they doubled up and continued to buy aggressively – hope springs eternal.
  • In a raging bull market, not controlling the risk works.  However, when the market turns, most momo accounts will be wiped out.
  • The chart shows that RSI is oversold indicating a potential bounce.
  • The chart shows heavy volume during the drop.
  • The chart shows a long wick on the red candle when the market dropped.  This also indicates a very very short-term potential bounce.
  • Here is the key question: ‘Will the bounce last?’  The answer depends on rumors about the Fed and the Fed’s decision tomorrow.

Housing Starts

Housing Starts came at 1.615M vs. 1.560M consensus.

Building permits came at 1.728M vs. 1.6M consensus.

Momo Crowd And Smart Money In Stocks

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

Gold

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

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

Oil

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 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 $1773, silver futures are at $22.55, and oil futures are at $70.72.

S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

DJIA futures are up 206 points.

MOMO’S GURUS IN THE STOCK MARKET BLAME EVERGRANDE ‘CRUSH ELON MUSK’ PLAN

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

Contagion

Please click here for a chart of  China Evergrande Group ().

Note the following:

  • The stock market is selling off in the early trade. The excuse is the fear of contagion from the selloff in Evergrande stock in China.
  • Evergrande is the second-largest property developer in China.
  • Evergrande has diversified into a number of businesses including electric vehicles.  Not long ago, the owner of Evergrande boldly claimed that he was going to crush Elon Musk.
  • All you have to do is to look at the chart of Evergrande and it becomes evident that Evergrande was in trouble.  This was well known to good strategists who keep an eye on developments outside the United States.  Of course, the momo crowd and their gurus were oblivious.
  • Last week, stock market momo crowd gurus were giving the infallible signal and their followers rushed in to buy aggressively. Please click here to see the infallible signal given by momo’s gurus.
  • For details of the infallible buy signal, please read the Morning Capsule dated September 15th.
  • Last week we wrote:

Nobody is asking the question, “What happens if the market breaks below the channel shown on the chart?”

  • In response to the momo crowd’s infallible signal, not only we stayed cautious for the overall portfolio, we issued a short sell signal on   in ZYX Short and a buy signal on inverse ETF  in ZYX Buy.
  • Pay attention to the ‘Protection Bands and What To Do Now?’ section below.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade. To them, the dip is a buying opportunity.  Smart money is🔒.

Gold

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

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

Oil

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 down and bonds are ticking up.

The dollar is stronger.

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 $1759, silver futures are at $22.41, and oil futures are at $70.43.

S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

DJIA futures are down 633 points.

To take a free 30-day trial to paid services to gain access to more opportunities, please click here.

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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.

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