By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Fed Meeting Ahead
Please click here for a chart of the Federal funds effective rate.
Note the following:
- We have previously shared with you that 3884 was a critical level in S&P 500 futures. S&P 500 futures are trading around 3860 as of this writing.
- The FOMC meeting starts Tuesday. The policy statement will be released on Wednesday at 2pm ET. Powell’s press conference will start at 2:30pm ET.
- Here is The Arora Report call:
- There is a 70% probability of a 75 bps interest rate hike.
- There is a 30% probability of a 100 bps interest rate hike.
- Lately, the momo crowd buys ahead of the Fed meeting. Their reason for buying ahead of the Fed meeting is hope strategy. On top of that, the new momo crowd gurus’ narrative is to not believe the Fed.
- Momo crowd gurus will be looking for anything they can twist to show as proof that the Fed is not serious about fighting inflation to persuade their followers to buy stocks.
- This morning stock futures are down in spite of momo buying because yields keep on rising.
- The chart shows that with the exception of the last decade, the Fed funds rates have been generally higher. The chart spans 68 years.
- When you look at the chart, it is conceivable that the Fed funds rate could go to 5% or higher.
- If the Fed funds rate goes to 5% or higher, expect a down move in the stock market.
- Stock market bulls are now accepting that the Fed funds rate may go to around 4%, but they are contending that it will not stay there long because of recessionary fears.
- Stock market bears contend that the Fed will keep interest rates high for a long time.
- Powell has said that he intends to keep interest rates high until the Fed sees inflation coming down for several months.
- On the positive side, various components of inflation that we watch at The Arora Report are peaking. If the narrative of inflation peaking takes hold, smart money and other groups in the stock market that are selling now will stop selling and momo crowd buying can take the stock market significantly higher.
- World Bank President David Malpass said that the world is heading for a recession in 2023.
- Investors need to remember that the best stock buying opportunities occur during a recession. It is important to stay involved, have enough cash and hedges and buy when the signals are given.
- One of the biggest mistakes investors make is that they get disillusioned and disengaged as the economy heads towards a recession, and then they miss the best buying opportunities.
- Investors need to stay nimble and watch the data.
- The sum total of the foregoing as an actionable item is in the Protection Bands And What To Do Now section below.
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 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin
There is selling in bitcoin. Bitcoin is under $19,000.
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 $1674, silver futures are at $19.34, and oil futures are at $82.44.
S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3770, 3630 and 3600.
DJIA futures are down 259 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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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.
