HOT INFLATION DATA DASHES MOMO HOPES BUT MOMO BUYS STOCKS ANYWAY

By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

Inflation

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 momo crowd uses hope as a strategy. Prudent investors know that hope is never a good strategy – this is being vividly demonstrated in the stock market today.
  • Yesterday, the momo crowd aggressively bought NASDAQ stocks as they believed that CPI data would be less than the consensus and the stock market would stage one of the biggest rallies.
  • The chart shows that S&P 500 ETF SPY was running up strongly prior to release of the CPI data.
  • The chart shows when the CPI data was released.
  • CPI data came worse than expected.  Here are the details:
    • CPI came at 0.3% vs. 0.2% consensus.
    • Core CPI came at 0.6% vs. 0.4% consensus.
  • The chart shows a quick drop in the stock market on the CPI numbers.
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • The chart shows that the VUD indicator was solid green, indicating net demand for stocks before the release of the CPI data.
  • The chart shows that the VUD indicator is solid green even after the release of the CPI data.  The reason is that the momo crowd is aggressively buying the dip.  
  • Of note is that smart money is not selling, perhaps because smart money already sold into the rallies over the last few days.  
  • From a traditional, technical analysis perspective, the market is right at the prior lows and any break below will bring technically oriented sellers.
  • Please click here for the day chart of S&P 500 ETF SPY which was provided with yesterday’s Morning Capsule.  For the sake of full transparency, the chart has not been updated.  The market is now below the zone marked as the support zone on the chart.

China

On Tuesday, Shanghai reported zero new cases of coronavirus.  Stocks in China and Hong Kong rallied on the virus news.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) 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

Cryptocurrency algorithmic stablecoin TerraUSD plunged to less than 25% of its nominal $1 stable value before staging a partial recovery.  After all, this stablecoin is not stable. 

This has exposed a flaw in the algorithmic stablecoin as they cannot sell bitcoin to backup the stablecoin due to lack of liquidity in bitcoin. 

The organization backing TerraUSD has announced a recovery plan and is seeking a bailout.

Coinbase stock (COIN) has plunged after reporting earnings less than the consensus.  Coinbase is the largest U.S. cryptocurrency exchange.  Coinbase CEO said that there is “no risk of bankruptcy.”       

Markets

Our very, very short-term early stock market indicator is indeterminate due to noise in the data. 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 $1837, silver futures are at $21.39, and oil futures are $102.62.

S&P 500 futures resistance levels are 4000, 4200 and 4318: support levels are 3950, 3860 and 3770.

DJIA futures are down 123 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 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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This post was just published on ZYX Buy Change Alert.

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Nigam Arora

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

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.

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