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

$2.2 Trillion

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:

• $2.2 trillion is a lot of money.  This is how much notional value of options is set to expire today.

CAPTURE IMMENSE GAINS SUCH AS 2670% — PRESIDENTS’ DAY SALE — DOUBLE BONUS: ACT NOW TO GET FREE TRIALS

• The option expiration includes over $1 trillion related to S&P 500.
• Investors are increasingly buying puts to hedge their stock exposure.
• Market makers who sell puts to investors, sell S&P 500 futures and ETF SPY to hedge their exposure.
• If the stock market does not significantly fall today, most of the put options will expire worthless.
• After options expire worthless, market makers will unwind their hedges by buying S&P 500 futures.  Barring any other news from Russia or the Fed, this should technically lift the stock market on Tuesday or later today.
• The chart shows that the drop yesterday was on a relatively low volume compared to prior drops for the size of the drop.  This is a bullish indication, and it means that there are fewer weak hands in the market compared to the recent past.
• The chart shows that the market fell below the top support/resistance zone, but it is still significantly above the lower support zone.
• We are receiving several requests from investors to do a podcast on put/call ratios as a sentiment indicator to help them in their analysis.  If you would like such a podcast, please write to ambassador@thearorareport.com.

Russia

Here are the key points.

• A big part of the selling yesterday was apprehension going into a three day weekend.  It is common for hedge funds to reduce risk going into a three day weekend at a time of heightened geopolitical tensions.
• Last night, stock futures lifted on the news that Lavrov of Russia and Blinken of the U.S. agreed to meet next week.
• This morning, stock futures gave up the gains on three pieces of news.
  • Russia has now amassed 190,000 troops around Ukraine.
  • Russia will conduct nuclear exercises.
  • There is more shelling in eastern Ukraine.

Fed Speak

Several Fed officers are talking, and what they say may move the markets.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) in stocks in the early trade.  Smart money is 🔒 in the early trade.

Gold

The momo crowd is 🔒 in gold in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

Oil is falling on concerns that the U.S. is near a deal with Iran.

The momo crowd is 🔒 in oil in the early trade.  Smart money is 🔒 in the early trade.

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 down, and bonds are ticking up.

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 $1899, silver futures are at $23.98, and oil futures are $88.31.

S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

DJIA futures are down 14 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.

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

Indecision

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:

• Linda Thomas-Greenfield, the U.S. ambassador to the United Nations, is warning that a Russian invasion of Ukraine is imminent.

PRESIDENTS’ DAY SALE: PERFORMING BETTER DURING MARKET TURBULENCE

• Stock futures were lifting from their lows on momo crowd buying when the new warning came.  The new warning is causing a downdraft as of this writing.
• The chart shows that the stock market is consolidating in the top support zone.
• Consolidation shows indecision.
  • The market wants to believe that Russia will not invade Ukraine, but the U.S. is keeping up a campaign of repeating that the invasion is imminent.
  • The market is concerned about Fed policy, but the minutes released yesterday were less hawkish than expected.  Please see the Afternoon Capsule.
• Money is flowing out of stocks into gold.  This is a potential negative for the stock market.

Jobless Claims

Weekly initial claims came at 248K vs. 220K consensus.  This is a leading indicator.

Housing Starts

Housing starts came at 1.638M vs. 1.705M consensus.

Building permits came at 1.899M vs. 1.750M consensus.  Building permits is a leading indicator.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 in stocks in the early trade.  Smart money is 🔒 in the early trade.

Gold

Gold is approaching the psychological resistance level of $1900.

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 🔒 in oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒, but rumors will determine the course of the market.  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 down, and bonds are ticking up.

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 $1894, silver futures are at $23.73, and oil futures are $92.55.

S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.

DJIA futures are down 178 points.

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

Buying Binge

Please click here for a chart of retail sales.

Note the following:

• The U. S. economy is 70% consumer based.  Therefore investors need to pay attention to retail sales.
• In theory, when prices rise, consumers pull back.  When consumers pull back, it puts breaks on rising prices.
• The chart shows the new data that retail sales increased by 3.8% vs. 1.9% consensus.
• Retail sales ex-auto increased by 3.3% vs. 1.0% consensus. We exclude auto because autos are very volatile and hinder proper forecasting.
• Inflation at the consumer level is running at over 7%.  Such inflation should have caused the consumer to pull back but instead, the foregoing data shows the consumer is on a buying binge willing to pay higher prices.
• Are consumers going on a buying binge because they expect prices to go higher in the future and they are hoarding now? If yes, this will lead to higher inflation.  Inflation is driven by expectations.
• Where is the consumer getting the money to go on a buying binge and pay higher prices?  Do you remember money printing by the Fed?  About $5 trillion that the Fed created out of thin air is circulating in the system and is the root cause of inflation.
• Covid related supply chain disruptions have contributed to inflation but the root cause is demand and not supply.  The demand is the result of excess money in the system.
• The stock market initially ignored the data but then started selling off as the data may force the Fed to be more aggressive.

Fed Minutes

The Fed minutes will be released at 2:00 pm ET.

There is apprehension ahead of the Fed minutes.  We will be carefully studying the Fed minutes for clues to the amount of interest rate increase – 20 basis points of 50 basis points.

Anomaly

The normal reaction to such hot retail sales numbers is for interest rates to rise and bonds to fall.  This morning, interest rates are falling and bonds are rising in an anomaly.  Such an anomaly occurs when investors expect growth to slow. This raises the specter of stagflation – stagflation can potentially cause the stock market bubble to burst.  Investors need to stay on high alert and pay attention to ‘Protection Bands and What To Do Now?’ section below.

Industrial Production

Industrial Production came at 1.4% vs. 0.4% consensus.

Capacity Utilization came at 77.6% vs. 76.8% consensus.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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.

Markets

Our very, very short-term early stock market indicator is indeterminate as there is no way to project what is in the Fed minutes..  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 down and bonds are ticking up.

The dollar is falling.

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 $1860, silver futures are at $23.38, and oil futures are at $93.46.

S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.

DJIA futures are down 132 points.

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

Sharp Rally

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:

• In the Afternoon Capsule we wrote:

Be mindful of a potential sharp rally if tensions with Russia de-escalate.

• The call is proving spot-on as a sharp stock rally took place in the early trade on de-escalation with Russia.
• Putin is masterfully playing the game.
• Russia is claiming that several military units are returning to base as the drill is complete.
• NATO says that they are not seeing signs of a pullback.
• Expect ebbs and flows in dealing with Russia.
• The chart shows the sharp rally on de-escalation with Russia.
• As the rally was gaining steam, hot inflation data was released dampening the rally.
• The chart shows that the rally occurred with a gap up and the prior day’s low was well above the top band of the support zone. This is a positive in the short term. However, the hot PPI may quickly change the picture.

Producer Price Index (PPI)

PPI came at 1.0% vs. 0.5% consensus.

Core PPI came at 0.8% vs. 0.4% consensus.

These very hot numbers have resulted in a significant pullback in tech stocks from the high of the rip-roaring rally in tech stocks before the release of the PPI data.

Reduce Hedges

The top band of short-term hedges is being reduced. Please see the section below and a separate post.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒 in the early trade.

Gold

Money is flowing out of gold on de-escalation with Russia.

The momo crowd is 🔒 in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

Money is flowing out of oil on de-escalation with Russia.  There is a short sell signal on an oil stock in ZYX Short. There is also a buy signal on Russia in ZYX Emerging.

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒 oil in the early trade.

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 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 $1855, silver futures are at $23.20, and oil futures are $92.17.

S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.

DJIA futures are up 275 points.

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

A Way Forward

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:

• Expect major volatility ahead.  This morning’s events illustrated below make the point.
• The chart shows a green bar for the day to the right hand side in the pre market.
• Stock futures had turned positive last night but fell this morning as European stocks fell on concerns about a Russian invasion of Ukraine.
• In the early morning, money was flowing out of stocks into bonds, oil, and gold.
• Around 7:30 am ET came a statement from Russian Foreign Minister Sergey Lavrov that he saw a way forward with talks.
• Lavrov’s statement changed money flows.
  • Money started flowing into stocks.
  • Money started flowing into Russian stocks.
  • Money started flowing out of oil.
  • Money started flowing out of gold.
  • Money started flowing out of bonds.
• In response to Lavrov’s statement, the dollar fell, and the Russian currency ruble rose.
• The foregoing illustrates that at a time when there is significant bearishness, stocks can easily spike up.  In our analysis at The Arora Report, right now, the probability of a 10 – 12% drop in the stock market is about the same as the probability of a 5 – 8% rise. 
• The chart shows the trendline.  There will need to be a breakout above the trendline to create bullishness.  Stocks can easily break above the trend line on a de-escalation related to Ukraine.
• The chart shows the support zone.
• The chart also shows the lower support zone.
• The chart shows where the stops are.  If the market goes below the top support zone, hunt and destroy algorithms will try to take the stops out.
• To add to the uncertainty, the Fed is conducting a closed meeting of the Board of Governors at 11:30 am ET.  The rumors about the meeting can easily move the market to either side.
• Bullard is a hawkish Fed officer.  His appearance on television moved stocks lower after Lavrov’s statement moved stocks higher.  Please see the capsules from the last week.
• Adding to the bearishness this morning is that Goldman Sachs (GS) has revised its forecast for S&P 500 to 4900.  Not long ago, Goldman had increased its forecast to 5100.  Goldman is also calling for overweighting cash now.  It is of note that until now, Goldman has been very bullish and wrong this year.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 in the early trade.  Smart money is 🔒 in the early trade.

Gold

The momo crowd is 🔒 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 🔒 in the early trade.  Smart money is 🔒 in the early trade.

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 $1861, silver futures are at $23.86, and oil futures are $92.68.

S&P 500 futures resistance levels are 4460 and 4600: support levels are 4318, 4200, and 4000.

DJIA futures are down 18 points.