By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Front And Center
Please click here for a chart of the Federal Reserve balance sheet.
Note the following:
- The chart compares the Fed balance sheet (shown in blue) with S&P 500 (SPX shown in green).
- In 2022, investors should keep this chart front and center.
- The chart shows that the stock market has risen with a lag after the rise in the Fed balance sheet. In plain English, the Fed balance sheet is a fancy way of describing money printing.
- The chart shows a massive rise in the Fed balance sheet from under $1 trillion to $8.76 trillion.
- The chart shows a big drop in the stock market the last time when the Fed started slightly reducing its balance sheet.
- The chart shows a step rise in the Fed balance sheet when the stock market had a big virus-related drop.
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- The sum total of the foregoing is that the rise in the Fed balance sheet is one of three big factors responsible for the rise in the stock market.
- 2022 will be different than 2021 in that the Fed has started tapering. In plain English, this means that the Fed is printing less money.
- By March, the Fed will no longer be printing money.
- The bullish case for the stock market is that even though the Fed will stop printing money, the Fed has no plans to reduce its balance sheet in 2022 and therefore the stock market will continue to go up.
- The bearish case is that even though the Fed will not reduce its balance sheet, interest rates will rise and valuations are very high.
- As the bull and bear battle begins in 2022, expect more volatility.
Blind Money
Wall Street is frontrunning the blind money that is going to pour into the stock market today and tomorrow. Blind money is the money that comes in at the beginning of the year without any analysis.
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
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒.
For longer-term, please see gold and silver ratings.
Oil
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 $1806, silver futures are at $22.78, and oil futures are at $74.60.
S&P 500 futures resistance levels are 4826 and 4900: support levels are 4770, 4713, and 4600.
DJIA futures are up 143 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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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.
