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

Outlier

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:

• Please click here for a chart that was shown in yesterday’s Afternoon Capsule. The chart shows that the rally was killed by Bullard’s comments. For details, please read yesterday’s Afternoon Capsule.
• In the Afternoon Capsule, we wrote,

The Fed officers can be divided into two categories: hawkish and dovish. Bullard has always been hawkish. It is not clear how much Bullard is going to influence other Fed officers.  If the comment that Bullard made had come from a dovish officer, the call would have been to aggressively raise cash and hedges.  Since Bullard has a history of being hawkish, it is prudent to wait.  The market can easily rally if a dovish Fed officer comments to calm the fear.

• Early this morning stock futures were down significantly on the fear created by Bullard’s comments.  Then, a report surfaced that Bullard may be an outlier, and the Fed leadership is not supportive of such a rapid increase in interest rates.  Stock futures started slowly rallying and have turned positive as of this writing.
• The chart shows that the market did not fall below the top support zone, and it is likely to go above the top support zone after the market opens.  As long as the top support zone holds, this is a positive.

Consumer Sentiment

University of Michigan Consumer Sentiment data will be released at 10am ET.  This may be a market moving event.

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

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

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 down, and bonds are ticking up.

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 $1829, silver futures are at $23.08, and oil futures are $19.89.

S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are up 34 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.

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

40 Year High

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:

• Consumer Price Index (CPI) year over year came at 7.5%. This is a 40 year high.
• CPI month over month came at 0.6% versus 0.5% consensus.
• Core CPI came at 0.6% versus 0.5% consensus.
• These inflation numbers are bad no matter how you look at them.
• In yesterday’s Morning Capsule, we shared with you that the positioning going into the CPI number was negative. For this reason the reaction so far in the market is mild negative with DJIA futures falling 250 points as of this writing. If the positioning was positive going into the numbers, DJIA futures would have been down about 1,000 points.
• In yesterday’s Morning Capsule, we shared with you the difference between the behaviors of the momo crowd and smart money.  The momo crowd was buying ahead of the number, but smart money was cautious.  Now, the momo crowd is getting burned and selling.
• The chart shows when the CPI was released and the subsequent fall in the market.
• The most important observation from the chart is that the market is still above the top support zone.
• The chart shows that the market has turned down roughly from the same place where there was a prior high not that long ago.  The prior high and the high this morning in the pre market will now start acting as resistance.

10-Year Yield

The 10-year Treasury yield is the benchmark both for credit and stocks.  The yield is touching 2.0% as of this writing.

Jobless Claims

Initial claims came at 223K versus 234K consensus.

Hedges

The expectation is that bullish gurus will come out and start proclaiming that inflation is going to slow.  In our analysis at The Arora Report, we agree that inflation is likely to slow.  The key question is if bullish gurus are able to rally the market from here.  Based on a complex set of criteria, if there is no rally, hedges may be raised.

Momo Crowd And Smart Money In Stocks

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

Gold

The momo crowd is 🔒.  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.

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 $1829, silver futures are at $23.34, and oil futures are $89.44.

S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are down 250 points.

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

Momo Buys Ahead Of CPI

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 bond selloff has paused. Yields are pulling back.
• Yields pulling back are causing money to flow into stocks.
• The all-important CPI data will be released tomorrow morning at 8:30 am ET.
• Smart money is typically cautious ahead of a big number. The reason is that a number such as CPI presents risk. Smart money focuses on risk first and making money second. Even though there is strong buying in the early trade, there is no smart money buying.
• The momo crowd is aggressively buying stocks in the early trade.  The momo pattern is different from smart money.  The momo crowd gets hopeful and tends to buy out of emotion ahead of a big risk event such as CPI.  The momo crowd focuses on making money and ignores the risk.
• The chart shows that the market is consolidating above the top support zone.
• RSI shows that the market has barely become overbought after the recent rally.  The pattern of RSI is such that it indicates room for further rally provided that tomorrow’s CPI number does not cause a selloff.
• The chart shows the volume is low on the rally.  This indicates a lack of conviction.
• All investors should pay attention to positioning as it can give you a big edge.  The positioning ahead of CPI is negative. In plain English, this means that if the CPI number is better than the whisper numbers, expect a rip-roaring rally. In response to requests from a large number of subscribers, we have been working on a podcast to provide next-level information on positioning.  The podcast titled Market Mechanics – Positioning To Gain An Edge will go live today.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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.

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 down and bonds are ticking up.

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 $1827, silver futures are at $23.11, and oil futures are $89.36.

S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are up 251 points.

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

25 Or 50 Basis Points

Please click here for a chart of the 10-year real interest rate.

Note the following:

• The chart is based on a model by the Federal Reserve Bank of Cleveland. The model estimates the expected rate of inflation over the next 30 years along with the inflation risk premium, the real risk premium, and the real interest rate.
• The yield on 10-year treasury notes have moved to 1.945%.
• Inflation is running over 7% at this time.
• The interpretation from the chart is that over 30 years inflation will be much lower and overall interest rates will remain lower. Of course, this will be true only if the model is correct.
• The regular readers of the Morning Capsule know that The Arora Report has consistently called in advance when Fed models have been incorrect.  So far, our track record is 100% correct.
• At a minimum, from the chart, the target for real interest rates from this model is to rise to 1.30% from the current 0.33%
• There is a great debate raging among economists — will the Fed raise interest rates by 25 basis points or 50 basis points in March?
• In our analysis, the stock market can handle 25 basis points but not 50 basis points.
• Prior to the current swoon in the stock market, we have provided three scenarios to the downside for the stock market.
  • 14% from the peak
  • 28% from the peak
  • 40 – 50% from the peak
• The scenario for a 14% pullback has already come true for practical purposes.
• If the Fed raises rates by 50 basis points, the 28% scenario will come into play.
• The Fed meeting is in March.  A lot will depend on the economic data that we share with you in the Morning Capsules between now and the Fed meeting.
• In our analysis, the probability of a 50 basis point increase is to the low side.
• Further in our analysis, if the Fed increases by 25 basis points, the stock market may rally as the overhang of a 50 basis point increase will lift.
• It is important for investors to pay attention to the Morning Capsules as nothing is cast in stone and the data can change rapidly.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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.

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 $1824, silver futures are at $23.01, and oil futures are $90.13.

S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are up 81 points.

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

CPI

Please click here for a chart of 7-10 Year Treasury Bond ETF (IEF).

Note the following:

• We have been sharing with you for a long time that investors should carefully watch the 10 year Treasury yield. For many investors, it is easier to watch ETF IEF.
• The chart shows that IEF is now significantly below the resistance zone.
• The chart shows that in 2022 IEF exhibited the biggest drop for the first day of a new year since 2009.
• The chart shows that IEF is making a lower low. This is a negative for the stock market.
• The Fed has not even started tightening yet, but the market is moving ahead of the Fed.
• The market moving ahead of the Fed is reflected in RSI.  RSI is a gauge of internal momentum.
• The chart shows a divergence between RSI and the price.  In plain English, this means that as the price is making a lower low, RSI is not making a lower low.
• The RSI behavior indicates that there is a high likelihood of yields peaking for the very short term.  If that occurs, the stock market will rally substantially from here for the very short term. 
• It will all come down to the CPI data that will be released on Thursday morning.
• The consensus for CPI is 0.5% and the same for Core CPI.
• Investors are anxiously waiting for the CPI data.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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.

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 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 $1816, silver futures are at $22.87, and oil futures are $91.86.

S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are up 50 points.