By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Raise Hedges
Consider raising short term hedges to 8% – 14% from the prior 4% – 9%.
Those who do not hedge may want to increase cash. To learn more, please see the separate post titled “Update On Hedges.” A new post will be published shortly.
These actions should preferably be taken on bounces.
The Chart
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 for practical purposes, in the early trade, the market has retraced back to the low from May 20.
- The chart shows that the rally was a bear market rally and a bull trap.
- The chart shows that the bullish momo gurus have been proven wrong.
- Expect momo gurus to proclaim that a successful retest of the low is underway and that this is a great buying opportunity. Keep in mind that the job of the momo gurus is to persuade investors to continue to buy. Your goal is not the same as that of the momo gurus. Your goal should be to maximize the wealth you generate in your lifetime.
- Please listen to the podcast titled “The Goal: Maximize Your Wealth Over Your Lifetime.” This podcast is available to all members. You do not have to be an AAC member to listen to this podcast. Under present market conditions, this podcast will be very helpful to you. Please click here to listen.
- The chart shows that the market is now in the support zone.
- There is a better than 65% probability that ultimately this support zone may be breached, and the market may head towards the “Not Mother Of Support Zones.”
- The chart shows that previously volume was not heavy, but it was heavier during Friday’s selloff. This is a negative.
- Those with deep knowledge of RSI will see that RSI shows that there is more room to fall. On the other hand, those without deep knowledge of RSI will claim that RSI is oversold and will give a buy signal.
Capitulation
We are receiving a large number of questions asking if a capitulation has taken place. It is the most important question that investors can ask right now. The reason is that if you can identify a capitulation, it can be tremendously profitable as it often leads to a major buy signal.
The answer to your questions is that a capitulation has not yet taken place. Be careful because the knowledge in the media about capitulation is grossly incomplete. Most of the gurus making capitulation calls have been consistently wrong because they have not learned the truth about capitulation but simply depend on outdated textbooks.
The very important podcast titled “The Ten Secrets Of Epic Capitulation Riches” was recorded over the weekend and is now in post-production.
China Threatens War With The US
China is threatening war with the US. This is adding to the angst over inflation and the Fed to bring the stock market down. After the West was united and imposed severe sanctions on Russia, expectations were that China would learn and back off. Instead, China appears to want to follow Russia’s footsteps and has become even more aggressive. Over the weekend, China said that it will “fight to the very end” to make sure Taiwan does not stay independent.
Inverted Yield Curve
An inverted yield curve is a signal of an impending recession. The yield curve briefly inverted this morning. Please see prior posts on the subject.
The Fed
The Fed meeting starts tomorrow. The FOMC rate decision will be announced at 2pm ET on Wednesday.
Terminal Rate
In our analysis at The Arora Report, the probability is going higher that Fed funds terminal rate may need to go above 4% to control inflation. Many strategists are still around 2% – 2.5%.
In our analysis, the market is not prepared for such a high rate
75 Basis Points
Powell committed himself to a 50 basis point hike in June. In our analysis at The Arora Report, the probability of a 75 basis point hike is increasing, perhaps later. We previously shared with you our analysis that the market is not prepared for a 75 basis point hike.
Quadruple Witching
Quadruple witching is ahead and has potential to artificially cause big moves to the upside or the downside.
Worst Quarter
So far, this is shaping up to be the worst quarter since 2008 for the standard 60/40 portfolio that is the bedrock of many money managers.
Japan In Trouble
Japanese yen hit a 24 year low this morning. If you think gas prices are too high in the US, think about Japan. Oil is priced in dollars. The dollar is very strong; the yen is getting weaker. Gas prices are soaring in Japan, more than in the US. The head of the Japanese Central Bank is becoming very unpopular for his money printing policies. The Japanese are learning, just like Americans, that there is no free lunch. It is important to pay attention to Japan because Japan is the third largest economy in the world.
Momo Stock Bankruptcy
One of the favorite momo stocks was Electric Last Mile Solutions (ELMS). ELMS has become the first electric vehicle maker to file for Chapter 7 bankruptcy and liquidate.
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.
Bitcoin
Bitcoin is breaking down. The market is gunning for Microstrategy’s (MSTR) large bitcoin position. It appears that MSTR will receive a margin call if bitcoin falls under $21,000. Bitcoin has fallen 11% today to $23,614.
Celsius is pausing bitcoin withdrawals.
Binance, the largest crypto exchange by some measures, is temporarily putting a hold on withdrawals.
It appears that in the crypto world it is a run on the bank, but there is no government protection.
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 rising fast, and bonds are falling rapidly.
The dollar is very strong.
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 $1845, silver futures are at $21.39, and oil futures are $118.09.
S&P 500 futures resistance levels are 3860, 3950, and 4000 : support levels are 3770, 3630, and 3600.
DJIA futures are down points 604.
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 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 take a free 30-day trial to paid services to gain access to more opportunities, please click here.
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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.
