By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Adjusting Protection Bands
Please click here for a chart of the Federal Reserve’s balance sheet.
Note the following:
- The expectations in some non-momo circles were that Powell would finally wake up to the reality of the hard data and announce a taper in his Jackson Hole speech. The momo crowd on the other hand believed that Powell would continue his ways of excessive money printing and ignore the data.
- Powell did not announce taper.
- What Powell does is critical to the stock market because money printing is a part of the air that is inflating the stock market bubble.
- Taper does not mean that the Fed will stop money printing. It simply means that the Fed will reduce money printing by a tiny amount such as $10 billion per month. In this scenario, the Fed’s balance sheet will still continue to grow.
- In plain English, the Federal Reserve’s balance sheet is a fancy way of saying money printing.
- Note from the chart that in 2008 the Federal Reserve’s balance sheet stood at $909.982 billion.
- The chart shows that the balance sheet now stands at $8.257 trillion.
- Note from the chart the recent rapid rise in the Federal Reserve’s balance sheet.
- The Federal Reserve is increasing its balance sheet by printing $120 billion of new money each month.
- The Fed started this emergency policy when the country was locked down and there was no vaccine. Since then, the stock market has doubled, house prices have skyrocketed, the number of open jobs is greater than the number of unemployed and the economic data that we share with you in the Morning Capsules has been the strongest in decades. Yet, the Fed has refused to change its emergency policy.
- Powell has been wrong about every critical projection that he made to justify continued excessive money printing.
- Here are the key considerations about investors adjusting protection bands.
- If Powell’s speech was the only consideration, it would make sense to reduce cash and hedges to buy more stocks.
- The next jobs report will be released on September 3. If the number is strong, there will be pressure on the Fed to announce taper at the next FOMC meeting on September 22.
- September is historically the weakest month of the year.
- Stock market crashes tend to happen in October.
- The purpose of protection bands is to protect long-term positions.
- The tactical short-term positions are grouped with cash.
- The Fed is behind the curve. Sooner or later they will have to catch up and start tapering.
- It is worth repeating that even with tapering, the Fed will continue to print excessive amounts of money.
- With its asset purchases, the Fed has totally suppressed volatility in some fixed income markets. Even though the taper amount will be small, the Fed may not be able to suppress volatility in fixed income markets after the taper starts. The volatility from fixed income may creep into the stock market.
- Based on the foregoing, there is no change to the protection bands at this time until September 3.
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 🔒.
Gold
The momo crowd is 🔒 gold. Smart money is 🔒.
For longer-term, please see gold and silver ratings.
Oil
95% of the crude oil production in the Gulf of Mexico is shut down due to Ida.
The momo crowd is🔒oil. Smart money is 🔒.
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 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 $1817, silver futures are at $24.20, and oil futures are $68.76.
S&P 500 futures resistance levels are 4600 and 4900: support levels are 4460, 4400 and 4318.
DJIA futures are up 25 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.
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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.
