By Nigam Arora & Dr. Natasha Arora

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

Powell Was Wrong

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:

  • Powell will testify before the Senate Banking Committee today.
  • In his prepared speech, Powell effectively admits the following,
    • Powell admits that he was wrong about the causes of the recent rise in inflation.
    • Powell admits that he was wrong about the length of the supply chain disruption.
    • Powell admits that he was wrong about how long the inflation would last.
    • Historically, The Arora Report now has a 100% batting average in clearly pointing out every time the Fed has been wrong well before it became obvious to most analysts.
    • This remarkable accuracy has helped The Arora Report with correct calls on the markets as the Fed policy is a major determinate of the markets.
  • Immediately after the Fed meeting, we wrote,

The VUD indicator is mixed after the Fed statement.  The inference so far is that the momo crowd has simply shrugged off potential for taper in November.   The momo crowd is more focused on buying because there is no taper this time.

  • As the momo crowd bought after the Fed meeting, we wrote in bold letters,

Digging Below The Surface

When we dig below the surface, Fed’s policy going forward may not be as dovish as the momo crowd thinks. The taper may potentially be a turbo taper.

There is a potential of up to eight rate hikes by 2024.

When the Fed’s posture is changing, long term investors need to be careful.  Of course in the short term, momo’s belief is intact – ‘stonks always go up.’

  • The chart shows that even though the momo crowd is oblivious and buying, the rest of the market is waking up to the change in Fed’s posture.
  • We previously gave you the resistance zone.  The chart shows that momo buying took the market to the resistance zone.
  • The chart shows that the resistance zone so far has held.
  • Yellen will also testify before the committee.  We will be carefully watching the Q&A of Powell and Yellen testimonies to see if there are any new insights. Both are likely to officially maintain their stance that inflation is temporary.

Selling In Tech Stocks

10-year Treasury yield has moved to 1.539% as of this writing.  This is causing selling in tech stocks in the premarket.

Home Prices

Case-Shiller Home Price Index shows that home prices have risen 19.9% year over year.

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 🔒.

Gold

Gold is being sold due to rising interest rates.

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

Natural gas prices in Europe are hitting an all-time high.  The surge is due to a massive supply shortage.  Natural gas prices may move higher if the weather projections for the winter are colder than normal.

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒.

For longer-term, please see oil ratings.

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 $1728, silver futures are at $22.18, and oil futures are at $75.97.

S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

DJIA futures are down 159 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

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.