BRAINARD’S SENSIBLE TALK SPOILS MOMO CROWD’S PARTY

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By Nigam Arora & Dr. Natasha Arora

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

Sensible Talk

Please click here for a chart of Nasdaq 100 ETF (QQQ).

Note the following:

  • As a regular reader of the capsules, you know that the momo crowd’s party was just getting into full swing.
    • Traditional technical analysis had just given a buy signal.
    • The market has picked up momentum to the upside – momentum to the momo crowd is the same as alcohol to a party.
    • Momo gurus have been out in full force saying that the correction is over and it is time to aggressively buy stocks.
  • The following is important to give you the proper context of what has happened today.  You already know that over the last two years The Arora Report has been very critical of the Fed.  The Arora Report was one of the first to correctly call that the Fed’s policies were wrong.
    • At a time when no one was talking about inflation, The Arora Report correctly called that inflation would become a problem and persist.
    • When the Fed confidently started describing inflation as transitory and most economists bought into it lock, stock, and barrel, The Arora Report was one of the rare voices emphatically stating that the Fed would be proven wrong.
    • The Arora Report was one of the first to predict that interest rates would rise significantly higher.
    • The Arora Report was one of the first to predict that the balance sheet would be unwound quicker than the market expected.
  • Since Powell made a U-turn, The Arora Report has been very supportive of the Fed and our call has been that the Fed will carry through hawkish policies.  The Arora Report was in a distinct minority in this call, but now about one third of economists are saying the same thing.
  • The chart shows the important event of the day – a speech by Fed Governor Lael Brainard. Here is a summary of the key points from her speech.
    • She expects the balance sheet to shrink considerably faster than in the previous recovery.
    • She expects a much shorter period to phase in the maximum caps.
    • She expects that balance sheet reduction to contribute to monetary policy tightening over and above the expected increase in the policy rate.
    • She expects the combination of balance sheet reduction and rate increases to bring the stance of policy to a neutral position later this year.
  • All of the foregoing is an anathema to the momo crowd.
  • In our analysis at The Arora Report, the plan Brainard laid out is very sensible.
  • The chart shows persistent selling in tech stocks since Brainard’s speech.  The selling is by smart money while the momo crowd continues to buy the dip.
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • The chart shows that the VUD indicator was orange, indicating a net supply of stocks when smart money selling was overwhelming momo crowd buying.
  • The chart shows that the VUD indicator turned green when smart money stopped selling.
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Money Flows

The momo crowd money flows since the Morning Capsule are 🔒 (To see the locked content, please take a 30 day free trial).

Smart money flows since the Morning Capsule are 🔒.

Short squeeze money flows are 🔒.

A Special Note To New Subscribers

Note the smart money behavior.  Smart money tends to sell into strength on strong up days.

New subscribers should consider adopting smart money’s way of investing and trading.

Sentiment

Sentiment is 🔒.

Sentiment is a contrary indicator at extremes.  In plain English, this means that when sentiment becomes extremely positive it is time to sell and when sentiment becomes extremely negative it is time to buy.

Close

There appear to be sell on close orders.

There is merit to watching the pattern of market on close orders as they represent the day’s dominant net cumulative activity by many professionals and funds.

Gold

The momo crowd money flows in gold are 🔒 since the Morning Capsule.

Smart money flows are 🔒 in gold since the Morning Capsule.

Oil

The momo crowd money flows in oil are 🔒 since the Morning Capsule.

Smart money flows in oil are 🔒 since the Morning Capsule.

Buy Zones And Buy Now Ratings

🔒

Nibbling

🔒

This post was published yesterday in The Arora Report paid services.  Since then the Morning Capsule has had an update in the paid services.

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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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