Key To The Stock Market
Please click here for a chart of 7-10 year Treasury Bond ETF (IEF).
Note the following:
- The chart is of ETF IEF as opposed to a chart of yield because IEF is the easiest for most investors to watch.
- Bonds move inverse to interest rates. In plain English, when interest rates go higher, bonds fall.
- Our call has been that this stock market is a bubble.
- The bubble is being inflated with heavy borrowing, money printing and low interest rates artificially enforced by the Fed.
- We have repeatedly written that the biggest risk to this stock market is if the Fed loses control and interest rates rise.
- No worries according to the Fed. The Fed believes they are omnipotent. Powell has stated several times that the Fed has enough tools to manage the situation.
- With the passage of $1.9 trillion of the coronavirus stimulus bill in the Senate, more and more investors are realizing that Biden and Powell may have gone too far in heavy borrowing, money printing and pork for the rich disguised as attempts to help the working mom and pop. The investors who are coming to this realization now are making bets against the bond market.
- The chart shows the downward sloping trendline. This indicates that bonds have fallen a lot.
- Investors need to watch the support line shown on the chart and the resistance line shown on the chart.
- A decisive break below the support will be bad news for the stock market.
- A decisive break above the resistance line will be good news for the stock market.
- Investors should also watch RSI shown on the chart.
- Pay attention to the two white lines that are bounding the RSI. RSI moving out of the band shown on the chart will provide significant information to investors.
The Bottom Line
Here is the bottom line.
- Most investors should follow the ‘Protection Bands and What To Do Now?’ section below.
- Most of our subscribers have followed the February 11 signal given one day before the market top.
SIGNAL: TAKE AT LEAST PARTIAL PROFITS IN THE PORTFOLIO THAT SURROUNDS THE CORE MODEL PORTFOLIO
Signal(s) to enter, add, reduce, exit, hold or change.
We recognize that all investors are different and they have different portfolios. In the portfolio that surrounds the Core Model Portfolio, there are a large number of stocks where partial profits have already been taken. It is time to take more partial profits or full profits depending upon individual situations.
It is imperative to take more partial profits on the stocks that are based on the momo strategy.
We are not predicting this, but investors need to be mindful of February 2020 when Nasdaq lost over 20% in one month. Also many momo stocks lost 30 -80% in February 2020.
If you hedge, consider increasing hedges within the protection bands shown in the Morning Capsule. At this point, protection bands are not being changed but consider moving up in the protection band range. Protection bands are also your guide to determine how much profits to take.
- Noone should get locked into an opinion. It is important to stay neutral and pay attention to the new data as it comes in.
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 $1688, silver futures are at $25.20, and oil futures are $66.75.
S&P 500 futures resistance levels are 3860, 3950 and 4000: support levels are 3770, 3630 and 3600.
DJIA futures are up 121 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, on dips, 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, 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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