By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know now.
Misleading Narrative Takes Hold
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 when ADP data and GDP data were released. Please read the Morning Capsule for details.
- The chart shows when JOLTS data was released. JOLTS shows 10.334M job openings.
- The chart shows when the text of Powell’s speech was released.
- The chart shows that the stock market took off on Powell’s speech. At the peak, NASDAQ was up over 3%.
- Everything Powell said was already well known. For this reason, in a rational market, there should have been no positive or negative reaction to Powell’s speech.
- We previously shared with you that Powell was expected to say that it was time to slow down rate hikes. This is exactly what Powell said. However, in any logical objective analysis, this is not a reason to buy stocks. As we have explained before, the Fed has already aggressively raised rates, and it is sensible to slow down because monetary policy works with a lag.
- Momo gurus’ job is to run up the market. The momo crowd wrongly believes that the job of their gurus is to provide objective analysis. Since the momo crowd does not do any analysis and simply follows their gurus like sheep, momo gurus’ misleading narrative is taking hold and leading to aggressive buying by the momo crowd.
- The momo crowd is most aggressively buying tech stocks and junk stocks.
- Momo gurus’ narrative is highly misleading because it does not explain the rest of Powell’s speech, which was hawkish.
- Here are the key points from Powell’s speech and Q&A.
- Rates will rise to a “sufficiently restrictive level.”
- The terminal rate will likely be higher than what was thought at the September FOMC meeting.
- Lags in monetary policy mean that it is difficult to not overtighten. Slowing rate hikes will allow time for inflation to come down.
- The target for inflation is still 2%.
- The possibility for a soft landing has narrowed.
- The Fed needs to see more evidence that inflation is declining. Inflation is currently still too high.
- As we have previously shared with you, in The Arora Report analysis, there are two keys to the Fed policy.
- How high do terminal rates go?
- How long does the Fed keep rates near the high terminal rate?
- Powell’s speech confirms The Arora Report forecast that was provided to you a while ago. Here are the key parts of The Arora Report forecast:
- Unless inflation data comes softer, the terminal rate is likely to be around 5%.
- The Fed is likely to keep interest rates above 4% for a while.
- There is only a narrow path to a soft landing.
- The highest probability scenario is a recession.
- The chart shows when the Beige Book was released, but it was ignored because of Powell’s speech.
- 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 VUD indicator shows net demand for stocks since Powell’s speech.
The momo crowd money flows since the Morning Capsule are 🔒 (To see the locked content, please take a 30-day free trial).
Smart money flows since the Morning Capsule are 🔒.
Short squeeze money flows are very 🔒.
A Special Note To New Subscribers
Note the smart money behavior. Smart money tends to sell into strength on strong up days.
New subscribers should consider adopting smart money’s way of investing and trading.
Sentiment is 🔒.
Sentiment is a contrary indicator at extremes. In plain English, this means that when sentiment becomes extremely positive it is time to sell and when sentiment becomes extremely negative it is time to buy.
There appear to be buy on close orders.
There is merit to watching the pattern of market on close orders as they represent the day’s dominant net cumulative activity by many professionals and funds.
The momo crowd money flows in gold are 🔒 since the Morning Capsule.
Smart money flows are 🔒 in gold since the Morning Capsule.
The momo crowd money flows in oil are 🔒 since the Morning Capsule.
Smart money flows in oil are 🔒 since the Morning Capsule.
Buy Zones And Buy Now Ratings
This post was published yesterday in The Arora Report paid services. Since then the Morning Capsule has had an update in the paid services.
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