By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
War Profiteering
Please click here for a chart of oil ETF USO.
Note the following:
- The chart compares oil ETF USO with oil and gas exploration and production ETF XOP.
- Historically, oil and oil stocks move together. The chart shows a glaring divergence. For the period shown on the chart, oil stocks have done 22% better than oil.
- Investors should always pay attention to glaring divergences such as the one shown on the chart.
- OPEC+ is meeting this Sunday.
- It appears that Saudi Arabia continues to be aligned with Russia.
- The European embargo on Russian oil goes into effect on Monday.
- We have written about this before that Russia is making more money from oil now after sanctions than before the Ukraine war.
- The way it is working is that Russia ships oil to China. China marks it up and ships to Europe. This allows European and U.S. politicians to claim high moral ground of sanctions against Russia while continuing to consume Russian oil.
- China is profiting from this arrangement.
- Europe and the U.S. have, in theory, found a way to punish Russia while continuing to gorge on Russian oil.
- The plan imposes price caps on Russian oil. Western insurance, finance, and service companies will be banned from financing or insuring oil cargo unless the price of the cargo is at or below the cap.
- Poland, Estonia, and Lithuania have been uncompromising in that they want the price cap to be at $30 per barrel.
- As a reference, Brent crude is trading at $84.82 as of this writing.
- It costs Russia about $20 to produce a barrel.
- The U.S. is advocating a price cap of about $65 per barrel.
- Privately, some European officials are accusing the U.S. of war profiteering for advocating for a $65 per barrel price cap. At $65 per barrel, Russia will be making a profit of $45 per barrel.
- To add to the chess game, Russia has declared that it will not sell oil to any country imposing price caps.
- To add to the complexity, there are China opening rumors. Please see the section below. China consumes about 15% of the world’s oil.
Order To The Chief Of Propaganda
A rumor from China is creating optimism in markets across the globe including the U.S.
- Please start out by reading yesterday’s Morning Capsule regarding 30% rally in Hong Kong stocks in two weeks.
- Hong Kong stocks are up 5.24% today.
- The rally is triggered by a rumor that China’s President Xi has ordered China’s propaganda chief to implement a new plan. Yes, it is China and they have a chief of propaganda.
- To justify zero-COVID policy, the Chinese government has been hammering its citizens with a message that the virus is very dangerous.
- The problem has been how to open China when most of its citizens believe that the virus is very dangerous.
- The propaganda plan calls for congratulating the Chinese Communist Party for saving six million lives and will apparently claim that the next variant of the virus is just like the flu and not dangerous.
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
BlockFi has filed for bankruptcy.
Bitfront, a crypto exchange, is shutting down.
Bitcoin is 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 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 $1765, silver futures are at $21.40, and oil futures are at $78.61.
S&P 500 futures resistance levels are 4000, 4200 and 4318: support levels are 3950, 3860 and 3770.
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 band 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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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.
