By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Fed Decision
Please click here for a chart of the Fed funds rate.
Note the following:
- FOMC will announce its rate decision at 2pm ET followed by Powell’s press conference at 2:30pm ET.
- The consensus is for a 50 basis point rate increase.
- There is a small probability of a 75 basis point rate increase.
- A 50 basis point rate increase is in the stock market, but not 75 basis points.
- The Fed statement may be market moving.
- The market is assuming a less hawkish Powell.
- We are looking for more guidance on quantitative tightening.
- The technical set up is for a 5% rally. Please click here for the chart. For the sake of full transparency, no changes have been made to this chart since its first publication yesterday. Please read yesterday’s Morning Capsule for details.
- The chart shows the Fed funds rate going back to 1955.
- The chart shows the period leading to and of stagflation.
- The chart shows a massive rise in the Fed funds rate engineered by Paul Volcker to control inflation.
- The result of the Fed funds rate hikes by Paul Volcker was a deep recession in 1981 – 1982.
- Please click here for a chart of DJIA from 1967 – 1982. Note from the chart that the stock market made no progress during this time.
- Take a few minutes and focus on this chart, especially if you have come to believe the myth that bear markets are always short and all you have to do is wait for the market to go up to new highs in a year or two.
- For more details, please read the Morning Capsule from April 28 titled “NEW DATA RAISES THE SPECTER OF THE “S” WORD NOBODY WANTS TO TALK ABOUT.”
- Stagflation, if it occurs, is the biggest danger to your wealth. From the large number of requests we have received for a podcast on stagflation, it is gratifying that you understand the dangers of stagflation and are beginning to develop your knowledge to protect your wealth and still take advantage of the new opportunities.
ADP
ADP is the largest private payroll processor in the country. It uses its data to give an advanced glimpse of the jobs picture ahead of the official report to be released on Friday at 8:30am ET.
ADP came at 247K vs. 390K consensus. The weakness appears to be an anomaly.
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 🔒 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 EU is proposing a ban on Russian oil. Oil is moving up on the news.
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 moving up along with speculative stocks.
Markets
Our very, very short-term early stock market indicator is 🔒 but can easily switch to 🔒, first on rumors and then on the Fed statement. 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 $1867, silver futures are at $22.41, and oil futures are $106.63.
S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.
DJIA futures are up 62 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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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.
