By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
No Landing
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 that the stock market has again moved above the upper band of the support/resistance zone.
- We previously wrote,
Even though bulls are disappointed that the market has not continued to go straight up and bears are taking comfort from this pullback, the fact is that such pull backs are often common in a strong bull run. Is this a strong bull run or a head fake? This is yet to be decided as there are many potential outcomes based on macro analysis. Those who have been reading the Morning Capsule regularly know that good macro analysis has worked well a vast majority of the time.
- More time is needed to know if this is a head fake or a strong bull run.
- We recently wrote,
The probability of an immaculate landing is only about 25%.
- The momo crowd is already moving past an immaculate landing. Momo gurus are so encouraged by their success in running up the market that now they are talking about “no landing.” In plain English, no landing means that the economy will grow at a robust rate, the unemployment rate will remain at decades’ low, and inflation will fall to 2%.
- There is a new economic theory developing that the Fed increasing interest rates and quantity tightening have no impact.
- Based on no landing, momo gurus are already talking about S&P 500 rocketing to 6000, about a 50% gain from here.
- Before getting sucked into this new economic theory, investors should revisit the last momo crowd economic theory fad Modern Monetary Theory (MMT). Here are the hallmarks of MMT:
- Rising national debt does not matter and should not restrict government spending.
- Negative interest rates and money printing have no adverse consequences.
- Central banks should print more money, and the government should use the newly printed money to spend more.
- Our long time readers may recall that The Arora Report was among the very few to debunk MMT at a time when it was at the peak of its popularity in 2019 and 2020.
- How deeply had MMT become entrenched among the elite? Even after inflation started raging and MMT was discredited, a respected national newspaper published a lengthy glowing profile of an MMT proponent. The author was drooling over the brilliance of this MMT proponent and appeared to be thanking her for making our lives better.
- The point of reminding you of MMT is to help you not fall prey to the new emerging economic theory.
- Instead of falling prey to the new economic theory, for real, solid insights, consider listening to the podcast titled “Immaculate, Soft, Or Hard Landing: S&P 500 2500 Or 6000.”
- We have been reminding you of Burns’s blunder – Arthur Burns lowered interest rates when inflation came down only to see inflation resurge again.
- Inflation is coming down as expected, but the dangers are still ahead. Let’s look at two pieces of data:
- Lumber prices are up 32% in one month. Lumber is a big component of the price of a new home.
- Used car prices, after having fallen for several months, jumped at the fastest pace during the last month since November 2021.
- As an actionable item, consider paying attention to the protection band. When various scenarios and probabilities are taken into account, the protection band is just right for these market conditions.
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
Bitcoin is range bound.
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 $1889, silver futures are at $22.44, and oil futures are at $78.10.
S&P 500 futures are trading at 4154 as of this writing. S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.
DJIA futures are down 104 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 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.
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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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.
