By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Note the following:
- The chart shows that the market had moved above the breakout line from October 2021. The main events for today were rate decisions by Bank of England (BOE) and the European Central Bank (ECB).
- BOE is hawkish.
- BOE has raised interest rates again – the first back-to-back rate increases since 2004.
- BOE raised its rates from 0.25% to 0.5%.
- BOE expects inflation to accelerate above 7%.
- The most important is that four of the nine members advocated for a larger rate increase.
- ECB is taking a different path from the Fed and BOE.
- The chart shows that the sum total of the central banks’ actions and the Meta (FB) meltdown is that the market is still trading above the higher band of the top support zone.
The Meta meltdown is causing a significant sell off. Here are the key points.
- Going into earnings, Wall Street was very bullish on FB. There were 51 buys, 9 holds, and 2 sells.
- We have been emphasizing that investors should understand positioning as it is very important. Institutions were heavily positioned to the bullish side.
- After earnings, about $200B market value has instantly evaporated.
- This is the third time in a decade that FB missed earnings estimates.
- The last two times, it turned out to be a buying opportunity.
- The biggest surprise in earnings was a growth guide of 7% at the mid point vs. consensus of 16%.
- FB is facing increasing competition from TikTok.
- FB is emphasizing short video, and it will take time to properly monetize.
- The metaverse is ahead, and FB will be a big player.
AMZN earnings are ahead and will have a major impact on the market.
There are concerns regarding the following:
- Expenses may have risen more than the consensus due to inflation.
- Comps are difficult.
- Conversions may be lower.
- AWS may not be as strong as the consensus.
AMZN earnings are a significant risk event for the market, both to the upside and the downside.
Initial claims came at 238K vs. 245K consensus.
Q4 productivity-PREL came at 6.6% vs. 2.7% consensus.
Momo Crowd And Smart Money In Stocks
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Interest rates are ticking up, and bonds are ticking down.
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 $1805, silver futures are at $22.42, and oil futures are $87.65.
S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.
DJIA futures are down 116 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.
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