STOCK MARKET BULLS HAVE GUN LOADED AND FINGER ON THE TRIGGER TO AGGRESSIVELY BUY – CPI AND FOMC AHEAD

By Nigam Arora & Dr. Natasha Arora

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

Gun Loaded, Finger On The Trigger

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:

• The chart shows that the stock market is at the top band of the resistance zone.
• There are two very important events ahead.
  • Consumer Price Index (CPI) will be released on Tuesday at 8:30am ET.
    • Consensus for headline CPI is 0.2%.
    • Consensus for Core CPI is 0.4%.
    • In addition to the headline number and Core CPI, there are many other details in this inflation report.
    • Irrespective of the CPI data, expect momo gurus to cherry pick data to come up with a reason to aggressively buy stocks.
  • FOMC is set to start its meeting Tuesday.  The rate decision will be announced on Wednesday at 2pm ET followed by Powell’s press conference at 2:30pm ET.
    • The consensus is that the Fed will skip a rate hike.
    • The consensus is that the statement or Powell will say the Fed is going to wait to see the impact of interest rate hikes so far.
    • The consensus is that Powell will be dovish.
    • Unless the Fed and Powell are extra careful to make sure that momo gurus cannot twist their words, expect momo gurus to twist the Fed’s and Powell’s words to promote aggressive buying of stocks.
• In addition to CPI and the Fed’s decision, Producer Price Index (PPI) will be released on Wednesday 8:30am ET, Retail Sales and Initial Claims will be released Thursday at 8:30am ET.
  • Consensus for headline PPI is – 0.1%.
  • Consensus for Core PPI is 0.2%.
  • Consensus for Retail Sales is 0.0%.
  • Consensus for Retail Sales ex-auto is 0.1%.
  • Consensus for Initial Claims is 251K.
• The technicals on the chart are picture perfect for a decisive breakout to occur above the top band of the resistance zone.
• If a breakout occurs, the top resistance zone on the chart will be the magnet.
• Based on the technical setup and anticipation of momo gurus successfully twisting the CPI data and the Fed’s words, bulls have the gun loaded and their finger on the trigger to aggressively buy stocks.
• Prudent investors know that the macro and fundamentals are negative, but they also know that market mechanics are powerful.  For those interested in next level information, a new podcast titled “Don’t Be A Hero: Six Dimensions Of The Stock Market” is in post production and will be live shortly.  The podcast will be available in Arora Ambassador Club.
• There are several flies in the ointment for the bulls’ plan to succeed.
  • The chart shows that RSI is overbought and has crossed below the signal line.  This indicates that the stock market is very vulnerable to a pullback at the slightest disappointment.
  • Volatility Index (VIX), which is also known as Wall Street’s fear gauge, is showing a setup that often leads to a stock market reversal. The setup includes the following:
    • VIX below 14.
    • On Friday, VIX closed at 13.83.
    • VIX going higher along with the stock market going higher.
    • On Friday, VIX closed up 1.32% when the stock market also went up.
  • The positive technical setup is almost entirely due to seven stocks.  These stocks are Apple (AAPL), Amazon (AMZN), Google (GOOG, GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).  Without these seven stocks, the stock market would have been flat year to date.
  • There are two different definitions of a bull market.  Right now, the media is focused on one definition and that is a 20% rise above the low.  According to this definition, the 248 trading day bear market, the longest since 1948, has ended.  This would have not been possible without these seven stocks.  This is an indication of an unhealthy stock market.  An unhealthy stock market does not mean it will not go up in the short term.
  • Last week, the laggards such as small caps (IWM), micro caps (IWC), financials (XLF), industrials (XLI), and materials (XLB) started moving up.  The reason behind the move is that money managers have no consequences for losing clients’ money, but it is a career suicide to significantly lag behind their benchmarks.  The money managers who are underweight in the seven magnificent stocks are using the strategy of buying laggards to catch up.  However, such money managers also have their finger on the trigger to sell the seven magnificent stocks.  If there is a down move in the seven magnificent stocks, the entire positive technical setup may turn into a negative setup.
• Even though the consensus is for inflation data to be good, there is a fair probability that the data may be worse than the consensus.
• Powell and the Fed have previously demonstrated that they are capable of being careful to phrase their narrative in a manner that it becomes very difficult for momo gurus to twist their words.  Could Wednesday be one of those times?
• As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.

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

Bitcoin is range bound.

Markets

Our very, very short-term early stock market indicator is 🔒.  The reason that the indicator is not positive, even with that knowledge, is that many hedge funds are likely to sell into any strength.  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 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 $1979, silver futures are at $24.37, and oil futures are at $68.53.

S&P 500 futures are trading at 4360 as of this writing.  S&P 500 futures resistance levels are 4400, 4460, and 4600 : support levels are 4318, 4200, and 4000.

DJIA futures are up 35 points.

Protection Band 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.

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.

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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.