ECB NOT DETERRED BY BANKING CRISIS, CREDIT SUISSE BORROWS $54B, STRONG NEW ECONOMIC DATA

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By Nigam Arora & Dr. Natasha Arora

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

European Central Bank

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

Note the following:

  • European Central Bank (ECB) is undeterred from the banking crisis.  ECB raised its key interest rate by 50 basis points.
    • The momo crowd is very disappointed.  The momo crowd was hoping for no rate hike.
  • Early buying in stocks has turned into selling on the ECB rate decision.
  • The ECB is the Fed’s cover to potentially raise interest rates by 25 basis points next week.
  • The chart compares SPY with several other ETFs since the start of the banking crisis last week.  Here are the key observations:
    • The chart shows SPY has hardly budged and is only down 0.56%.
    • The chart shows regional bank ETF KRE is down 15.81%.
    • The chart shows oil ETF USO is down 9.39% on recession fears caused by the banking crisis.
    • The chart shows copper ETF CPER is down 3.19% on recession fears caused by the banking crisis.
    • The chart shows gold ETF GLD is up 4.71% as money flows into the safety of gold due to the banking crisis.
    • The chart shows technology stock ETF XLK is up 1.11% as investors believe technology stocks will do better due to lower interest rates caused by the banking crisis and due to aggressive momo crowd buying.
  • Stock market bulls are disappointed in the initial claims data.
      • Initial claims came at 192K vs. 215K consensus.
      • This is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model.  Please click here to learn about the model.
      • The latest data indicates that the employment picture is still strong.
      • Stock market bulls want the employment picture to weaken so that the Fed can start cutting rates.
      • Stock market bulls were expecting a repeat of higher jobless claims and, in response, aggressive buying in the stock market.  From the Morning Capsule dated March 9:

Initial claims came at 211K vs. 198K consensus.  From the Morning Capsules you know that initial claims have been very low, typically under 200K.  Stocks immediately jumped on the release of this data.  The buying is especially aggressive in tech stocks and junk stocks.  Investors are celebrating a jump over 200K.

  • Stock market bulls are also disappointed in the housing starts data.
    • Housing starts came at 1.45M vs. 1.31M consensus.
    • Building permits came at 1.54M vs. 1.34M consensus.
    • This indicates that in spite of interest rate hikes and huge layoffs in the tech sector, the housing market is strong.
    • Stock market bulls were hoping for weaker data so that the Fed can cut interest rates.
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Credit Suisse

The momo crowd aggressively bought stocks yesterday on the news that Swiss National Bank would provide assistance to Credit Suisse (CS).  After the market close yesterday, the news broke that Credit Suisse will borrow up to $54B from Swiss National Bank. As usual, the momo crowd aggressively bought without doing any analysis. Nobody has asked a simple question before aggressively buying stocks: How does a bank with $9.7B in market cap borrowing $54B make sense?

First Republic Bank

We have previously shared with you that prudent investors should keep an eye on the stock of First Republic Bank (FRC).  Yesterday afternoon, the momo crowd aggressively bought First Republic stock on the news that the government may force it to sell itself in a fire sale.  The momo crowd aggressively bought the stock on the news.  Nobody asked the important question: Will the bank fetch a good price in a fire sale?  Smart money stepped in to short sell the stock taking advantage of the strength generated by the momo crowd.  The stock has lost about one-third of its value this morning.

Momo Crowd And Smart Money In Stocks

The momo crowd has switched from 🔒 (To see the locked content, please take a 30 day free trial) stocks to selling stocks in the early trade after the ECB decision.  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 🔒 in oil in the early trade.  Smart money is 🔒 in the early trade.

See also  SMART MONEY IN THE STOCK MARKET TAKES THE HINT FROM ISM DATA, MOMO CROWD IGNORES

For longer-term, please see oil ratings.

Bitcoin

Whales are managing to levitate bitcoin.

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 $1934, silver futures are at $22.04, and oil futures are at $67.23.

S&P 500 futures are trading at 3910  as of this writing.  S&P 500 futures resistance levels are 3950, 4000, and 4200: support levels are 3860, 3770, and 3630.

DJIA futures are down 224 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 good, very long term, existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills 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.

See also  WEEKLY STOCK MARKET DIGEST: BANKS BORROW A RECORD AMOUNT FROM THE FED – THE FED PRINTS THE MONEY OUT OF THIN AIR – MOMO FANTASY

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

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

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.

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