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 Euro Area Central Bank Balance Sheet.
Note the following:
- European Central Bank (ECB) has raised interest rates by 50 basis points.
- Not long ago, ECB was talking about raising interest rates by 25 basis points. However, in recent days, ECB raised expectations of a 50 basis point increase.
- Most investors are familiar with money printing in the US, but many US based investors do not pay attention to the expansion of the Central Bank balance sheet in Europe.
- The chart shows a dramatic expansion of the balance sheet in Europe. In plain English, there has been a very high level of money printing in Europe.
- ECB is saying that they will further normalize interest rates. In plain English, this means that they will raise interest rates further.
- With the exception of the brief pandemic dip, the large gains in the stock markets across the globe have been driven by easy money since 2009.
- All investors should differentiate between strategic and tactical. Please see the Afternoon Capsule for more details.
- The strategic message is clear – easy money that drove the stock markets across the globe relentlessly higher is mostly over.
- Out of the three major central banks in the world, now ECB is joining the Fed. Bank of Japan is still insisting on easy money.
- The reason Bank of Japan is still insisting on easy money is that they are afraid of the yen skyrocketing if they abandon the easy money policy.
- The momo crowd has grown to control the stock market due to the easy money policies of the central banks. As easy money policies disappear, the momo crowd will have less control over the stock markets. For this reason, investors should be careful before adopting the momo crowd’s hope strategy and following momo gurus.
- On a tactical level, there is a lot of bad news this morning, but the momo crowd is buying aggressively in the face of the bad news. The momo crowd is buying not because the economy is better or because geopolitics are better or central bank policies are better or company fundamentals are better or valuations are attractive. They are buying because their gurus have told them that the bottom is in and they expect a V shaped recovery in the stock market, just like it occurred several times over the last decade.
- The difference this time is that both the Fed and ECB are tightening, whereas over the last decade they were easing.
Japan
Bank of Japan left its interest rates unchanged.
China
Chinese credit markets are facing more debt delays. All investors should pay attention because the situation has the potential to get out of control. If the situation gets out of control, it will cause significant drops in stock markets across the world.
Italy
Mario Draghi has resigned. The yields on Italian bonds are rising. Italian 10 year debt is now trading 250 basis points over German 10 year debt. All investors should carefully watch the situation in Italy.
Germany
Gas is now flowing in Nord Stream 1 at 40% of the capacity. It is not clear what strategy Putin is using to allow the gas to flow at this time. Natural gas futures in Europe are dropping.
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 🔒 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 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Tesla (TSLA) has sold a majority of its bitcoins. This is dampening the sentiment in 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 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 $1701, silver futures are at $18.46, and oil futures are $96.08.
S&P 500 futures resistance levels are 4000, 4200 and 4318: support levels are 3950, 3860 and 3770.
DJIA futures are down 138 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 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 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.
