By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Highly Flawed
Please click here for a chart of two yield curves.
Note the following:
- The yield curve is one of the most important indicators for investors at this time.
- Please start out by reading the Morning Capsule dated March 23.
- The chart compares 10-Year Constant Maturity Treasury minus 2-Year Constant Maturity Treasury to 10-Year Constant Maturity Treasury minus 3-Month Constant Maturity Treasury.
- The chart shows that the former is in a downtrend but the latter is in an uptrend.
- Please click here for a chart going back to 1976 of the difference between the yield on 10-year Treasury and 2-year Treasury. This is the standard yield curve.
- The chart shows that this yield curve is close to inversion.
- The chart shows that this yield curve has been 100% accurate in predicting recessions.
- We have previously mentioned that Wall Street’s new favorite yield curve is the difference between 10-year Treasury and 3-month Treasury – the red line on the chart.
- The reason for the new favorite is that this does not indicate any recession ahead, and this helps Wall Street make a bullish case.
- The fact, not an opinion, is that the 10-year minus 3-month curve is highly flawed.
- The 3-month Treasury yield is directly tied to the Fed’s funds rate.
- The Fed’s funds rate was 0.00 – 0.25% until March 16.
- On March 16, the Fed raised it to 0.25 – 0.5%.
- The Fed has told us that they are planning on seven rate increases this year.
- In our analysis at The Arora Report, the terminal Fed funds rate is 3 – 3.25%.
- As the Fed funds rate rises, the yield curve of 10-year minus 3-month will fall.
- Without the foregoing adjustment, looking at the yield curve of 10-year minus 3-month and drawing a bullish conclusion is highly flawed.
- The yield curve between 30-year Treasuries and 5-year Treasuries has inverted for the first time since 2006. Remember that it was followed by the 2008 stock market crash.
- There is a lot of confusion about the yield curve and its importance to your investments. So far, no one in the media is telling the correct story. No wonder we have been getting a lot of emails requesting a podcast on the yield curve and its impact. We appreciate all of your very intelligent questions. In response to your requests, we are working on an in-depth podcast titled “Yield Curve: Flaws in 100% Accurate Indicator.”
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 🔒 in the early trade.
Gold
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 oil in the early trade.
For longer-term, please see oil ratings.
Bitcoin
On March 22, we wrote
Bitcoin is forming a triangle formation. A break to the upside above $43,500 has the potential for a substantial rally.
So far, that call has worked. Bitcoin is trading at $47,185 as of this writing.
Bitcoin has erased its losses for the year.
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 and bonds are range bound.
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 $1939, silver futures are at $25.24, and oil futures are $107.80.
S&P 500 futures resistance levels are 4600, 4713 and 4770: support levels are 4460, 4400 and 4318.
DJIA futures are down 32 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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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 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.
