DOT PLOT WILL BE THE MOST IMPORTANT CHART FOR INVESTORS TO WATCH TOMORROW, BRENT CRUDE HITS $95

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By Nigam Arora & Dr. Natasha Arora

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

Dot Plot

Please click here for the Fed’s prior dot plot.

Note the following:

  • The FOMC meeting is starting today.  Tomorrow, the Fed will announce its decision at 2pm ET followed by Powell’s press conference at 2:30pm ET.
  • The dot plot shows each FOMC participants’ projected mid point of the target for the federal funds rate.  Each dot represents an FOMC participant.
  • The chart shows that no FOMC participants projected a federal funds rate of less than 5.125% in 2023.
  • The chart shows that one FOMC participant projected a federal funds rate above 6% in 2023.
  • The chart shows wide dispersion in 2024.  The highest projection is 5.875%.  The lowest projection is 3.625%.
  • In The Arora Report analysis, there is enough uncertainty in the economic data that the high end of the projection at 5.875% and the lower end of the projection 3.625% are both possible.  This is why it is important for investors to start from Arora’s Second Law of Investing and Trading.  Arora’s Second Law states, “Nobody knows with certainty what is going to happen next in the markets.”  It is important to not get locked into a bullish or bearish point of view.  Consider flowing with the new data points.  The Morning Capsules are your best source of new data points that matter.  For the most part, you can ignore new data points that are not mentioned in the Morning Capsule.
  • The Fed is expected to release a new dot plot tomorrow.
  • The most important information from the Fed meeting will be the dot plot.
  • The consensus is that the Fed will have a hawkish statement but leave the rate unchanged.
  • Regarding the dot plot, momo gurus believe the dot plot will show as many as five interest rate cuts.  This is the reason momo gurus are giving to urge their followers to aggressively buy stocks.  The historical record is clear – momo gurus have consistently been wrong, yet being wrong does not stop momo gurus from making new projections and pretending that they know what the market will do.  Keep in mind that momo gurus’ real job is to run up the stock market under the disguise of analysis.  Nonetheless, it is important to pay attention to what momo gurus are saying because they have legions of followers who do not deeply analyze but instead, blindly buy.
  • Prudent investors should note that in contrast to the momo crowd, smart money is not engaging in wholesale buying of stocks at this time.  
  • The Arora Report has consistently called every major Fed move correctly over the last 16 years.
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.   Please scroll down to see the protection band.
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Housing Starts

Housing starts fell, but building permits went up.  This indicates that high interest rates are beginning to reduce  immediate demand for housing, but builders remain optimistic for the future.  Here are the details:

  • Housing starts came at 1.283M vs. 1.435M consensus.
  • Building permits came at 1.543M vs. 1.442M consensus.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple (AAPL).  Anecdotal evidence is that orders for iPhone 15 in China are strong.  Yesterday, we shared with you that iPhone 15 preorders in the U.S. appear to be better than expected.

In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Tesla (TSLA).

In the early trade, money flows are negative in S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.

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 *** stocks 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

Brent crude has hit $95.  Please see yesterday’s Morning Capsule for details on oil.  Here is the chart of oil futures. For the sake of full transparency, this chart is unchanged from what was previously published.

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

For longer-term, please see oil ratings.

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Bitcoin

Bitcoin (BTC.USD) is staying above $27,000 and seeing buying.

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 $1956, silver futures are at $23.59, and oil futures are at $92.03.

S&P 500 futures are trading at 4492 as of this writing.  S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are down 57 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.

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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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Picture of 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.

Picture of 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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