SMART MONEY SELLS THE STRENGTH IN STOCKS – POWELL RESOLUTE, MASSIVE LOSSES IN OIL

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By Nigam Arora & Dr. Natasha Arora

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

Powell Resolute

In Q&A at Cato Institute, Powell is resolute.  The momo crowd bought stocks yesterday ahead of Powell Q&A.  Please see yesterday’s Afternoon Capsule for details.  The momo crowd was also buying in the early trade.  Smart money is selling into the strength.

Powell is still answering the questions.  Let us see if momo gurus are once again successful in either twisting Powell’s words or making a mockery of Powell to run up the stock market.  Our indicator is negative.

Massive Losses

Please click here for a chart of oil ETF USO.

Note the following:

  • The momo crowd is suffering massive losses in oil.

  • The chart shows that Wall Street gurus were almost universally issuing strong buy signals on oil right near the top. At that time, The Arora Report was issuing a signal to sell short oil.
  • The chart shows a dramatic drop in oil.
  • On Monday, OPEC+ took an unprecedented step to cut oil production. OPEC+ took this step to run up the price of oil.  Momo gurus issued more strong buy signals on the OPEC+ news. How did oil respond?  The chart tells the story.  The chart shows that oil has made a lower low.
  • Most gurus have been issuing buy signals all along the massive drop in oil.
  • Why is oil falling?  Here are the two main reasons.
    • Oil is falling on recession fears.
    • It appears China is buying oil from Russia at a $20 – $30 discount and then selling the same oil to Europeans at a $5 – $10 premium.  It appears that the same thing is happening to LNG.
      • China is happy because they are making a lot of money.
      • Russia is happy because Russia is making more money from oil and gas exports now than it did before sanctions were imposed due to the Ukraine war.
      • The US and Western European countries are happy because their politicians are strong enough to withstand Russian pressure by maintaining sanctions on Russian oil.
      • Mainstream media is not reporting the story.
  • Prudent investors should note that while oil is falling on recession fears, the momo crowd is buying stocks because their gurus are telling them there will be no recession.
  • The Arora Report call is 75% probability of a recession in the US and 90% probability of a recession in Europe.
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Europe

ECB has raised rates by 75 basis points.  Now the key interest rate in Europe is at the highest level since 2011.  This rate hike is as we had expected in our analysis at The Arora Report.  For this reason, there is no change in our call in the “Protection Bands And What To Do Now” section.

Greater Harm

Two papers to be presented at a prestigious economic conference will say that the Fed’s efforts to bring inflation under control will cause more harm to the economy than is currently appreciated.

These papers are in total conflict with the momo gurus’ analysis.

These papers are in line with one of the high probability scenarios at The Arora Report.

Investors should not buy into following momo gurus because momo gurus claim they know what is going to happen next.  Follow Arora’s Second Law of Investing and Trading: Nobody knows with certainty what is going to happen next in the markets.

Take action based on Arora’s Third Law: Making investing and trading decisions based on probabilities is the only realistic and profitable approach.

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

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For longer-term, please see oil ratings.

Bitcoin

Bitcoin is range bound.

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 and bonds are range bound.

The dollar is slightly 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 $1723, silver futures are at $18.34, and oil futures are $83.02.

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

DJIA futures are down 157 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.

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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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