HAWKISH DOT PLOT SIGNALS ONLY ONE RATE CUT BUT AI BUYING MOMENTUM OVER POWERS

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By Nigam Arora & Dr. Natasha Arora

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

Hawkish Dot Plot

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 when the FOMC rate decision and dot plot were released.
  • The chart shows a quick dip on the hawkish dot plot.
  • The chart shows the dip was aggressively bought.
  • The chart shows when Powell’s press conference started.
  • Powell is more hawkish than expected.
  • In The Arora Report analysis, in theory based on the Fed, the market should have seen a very large drop.  However, the buying momentum on the AI frenzy is simply very strong and is overpowering the Fed announcements.  
  • Here are the key points from the Fed:
    • The Fed left interest rates unchanged.
    • The overall dot plot signals only one rate cut this year.
    • Fifteen Fed officials are predicting a rate cut still this year.  Four Fed officials do not see a rate cut this year.
    • No Fed officials are predicting an increase in interest rates this year.
    • The Fed expected core inflation to peak this year at 2.8%, which is higher than the 2.6% projection from March.
    • The Fed expects core inflation to cool to 2.3% in 2025 and 2.0% in 2026.
    • The expected unemployment rate for 2024 remains at 4.0%.  The unemployment rate is expected to increase to 4.2% in 2025 and then decrease to 4.1% in 2026.
    • The Fed expects economic growth to maintain at 2.1% for 2024, then decrease to 2.0% in 2025 and hold steady in 2026.
  • In The Arora Report analysis, a vicious short squeeze is in progress.  
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • The VUD indicator is green, indicating net demand for stocks.

Money Flows

The momo crowd money flows since the Morning Capsule are *** (To see the locked content, please take a 30 day free trial).

Smart money flows since the Morning Capsule are ***.

Short squeeze money flows are extremely ***.

A Special Note To New Members

Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling.  Over a long period of time, investors come out ahead by adopting smart money’s ways.  The exception is in a raging bull market – for very, very short term trades, consider following the momo crowd and not smart money.

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Sentiment

Sentiment is ***.

Sentiment is a contrary indicator at extremes.  In plain English, this means that when sentiment becomes extremely positive it is time to sell and when sentiment becomes extremely negative it is time to buy.

Close

There appear to be sell on close orders.

There is merit to watching the pattern of market on close orders as they represent the day’s dominant net cumulative activity by many professionals and funds.

Gold

The momo crowd money flows in gold are *** since the Morning Capsule.

Smart money flows are *** in gold since the Morning Capsule.

Oil

The momo crowd money flows in oil are *** since the Morning Capsule.

Smart money flows in oil are *** since the Morning Capsule.

Buy Zones And Buy Now Ratings 

For strategic positions, consider continuing to accumulate as various positions fall in the buy zones.

For tactical positions, consider taking profits as they run up.

Nibbling

Consider not nibbling at this time.

Nibbling refers to buying very small quantities, often in existing long-term positions with the intention of exiting these additions in the short term. It is similar to trade around positions but without specific signals.

 

The Afternoon Capsule is not published daily but only when conditions warrant it.  The content below is unchanged and is to be used for reference as needed. 

Sophistication 

The character of the market has changed.  Unfortunately, the last decade was an exception to the rule.  Take a look at the chart of the US market for a 15 year period from 1967 – 1982 — the stock market made no progress.

Many investors are spoiled due to the decade-long bull market.  A large number of investors believe that all they have to do is to buy and hold forever. Investors who do not believe in buy and hold forever say it is very simple – be all in or be all out.  Both beliefs are wrong.

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As the market turns volatile, many investors who do not understand the true nature of the market are jumping in with both feet without appreciating the risks, while other investors are getting whipsawed.

Risk and reward are two sides to the coin. It is important to consider both.

For your reference, we are pasting the following from your Getting A Running Start Guide,

Everything should be made as simple as possible but not simpler.

Albert Einstein

Strategic Vs. Tactical

All investors should consider bringing more sophistication to their investing and trading.  It is important to clearly understand the difference between strategic and tactical calls.  For your convenience, a prior post is pasted below.

We welcome your comments and questions.  The law does not allow us to answer them individually. However, when a large number of subscribers ask similar questions, a post is done – typically starting with Ask Arora.

Strategy

Strategy defines medium to long term plan to achieve the highest risk-adjusted returns.

Here are some examples of strategic calls for illustration only.

  • It is late cycle.  Portfolios have to be organized for the late-cycle.  Risks are much higher in the late-cycle compared to when a bull market is in an early stage.
  • The world is awash in debt.  The sovereign debt owed by governments and corporate debt owed by zombie corporations has dramatically increased.  It is a bubble that is getting bigger waiting for a pin to prick it.
  • Valuations are expensive.
  • Fed policy is shifting.
  • Earnings are rising.

Tactics

Tactics are small adjustments within the strategy to further enhance risk-adjusted returns.

Here are some examples of tactical calls.

  • Weak hands temporarily washed out.
  • Overbought condition temporarily relieved.
  • Sentiment backing off from almost extreme bullish levels.

If You Could Pick Only One

We recognize that all investors have individual preferences.  If you could pick only one, consider focusing on the strategy. Never focus only on tactics at the expense of strategy. 

Cash And Hedges

We provide a range for cash and hedges.  Most investors would be in the middle of the ranges.  As such, they would not need to make any change.  When a change is given only at the edges of the ranges, only the most active investors need to make a change.

Arora’s 12th Law

Arora’s 12th Law is applicable here: To be successful at investing and trading, flow with the new data, and stay nimble.

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Bullet Proof Your Portfolio And Increase Your Returns

We consistently see that private investors, money managers, and investment advisors who have attended the Bullet Proof Your Portfolio and Increase Your Returns seminar do significantly better compared to those who have not attended the seminar.

Here are the four main reasons why this consistently happens to investors who attend the seminar:

  • They start understanding the true nature of the markets.
  • Develop a better framework to handle the true nature of the market.
  • Tend to act with more conviction and with more comfort.
  • Tend to develop better control over their emotions.

 

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This post was just published yesterday on ZYX Buy Change Alert.

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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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