54% PROBABILITY OF A 100 BASIS POINT RATE INCREASE – MOMO CROWD AND FOREIGNERS TO THE RESCUE

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By Nigam Arora & Dr. Natasha Arora

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

100 Basis Point Rate Increase

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:

  • Prior to today, most credible economists were predicting either a 50 basis point or a 75 basis point rate hike at the next Fed meeting.  Of course the momo gurus were at 50 basis points.
  • In the Morning Capsule we shared with you The Arora Report’s analysis based on the CPI data:

The probability of a 75 basis point hike later this month is now 95%.

  • After the release of the Beige Book, our call is that there is a 54% probability of a 100 basis point rate hike.
  • The chart shows aggressive momo buying prior to the release of the CPI data.
  • Note on the chart the spike right before release of the CPI data that took out the stops of short sellers who correctly called that the CPI would be worse than consensus.  From the Morning Capsule:

Of special note is that a few seconds before the release of the numbers, there was huge, aggressive buying in stock futures taking out stops of short sellers.  Short sellers have proven to be right that the CPI numbers would be worse than the consensus, yet they lost money because their stops were taken out only a few seconds before the release.

  • The chart shows a selloff after the release of the CPI data.  Please read the Morning Capsule for details.  The chart shows that the dip was aggressively bought.  Our call in the Morning Capsule has proven spot on.  We wrote:

Expect momo gurus to latch onto the simple fact, and urge their followers to aggressively buy stocks.

  • The chart shows when the Treasury auction results were announced.  Here are the details:
    • $19B 30-year Treasury bond reopening
    • High yield: 3.115% (When-Issued: 3.133%)
    • Bid-to-cover: 2.44
    • Indirect bid: 73.2%
    • Direct bid: 16.3%
  • The auction results were better than stellar.  The reason for the stellar auction is that foreigners are willing to lend to the US government for 30 years at 3.115%.  Foreigners are not stupid.  They are looking at the differential in the yield between their home country and the US.
    • Often, foreigners will borrow in their home country at a low rate and buy long term Treasuries at a higher rate.  This way they lock in the yield differential.
    • At first, locking in the yield differential might seem like a free lunch, but there is no free lunch in the world of investing.  Foreigners have the currency risk.
    • Foreigners often hedge their currencies.  After taking into account the cost of hedging, buying US Treasuries is not as lucrative as it first seems.
  • The chart shows when Fed’s Beige Book was released.  Here are the two key points from the Beige Book:
    • The labor market is set to remain tight.
    • There is increased risk of recession.
  • The chart shows when the market dipped on the release of the Beige Book.
  • The chart shows that the momo crowd aggressively bought the Beige Book dip.
  • Why is the momo crowd buying so aggressive today in spite of the bad news?  The reason is that some momo gurus are predicting that today is the stock market bottom, while others are predicting that tomorrow will be the stock market bottom.
  • Before you get too excited, keep in mind that these gurus have predicted dozens of bottoms, and they have been wrong all along.  These gurus have been urging their followers to buy every tiny dip since the market top.
  • 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 is mostly green.  This is due to aggressive momo crowd buying and an absence of smart money selling.
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Yield Inversion

Yield inversion between 2-year and 10-year Treasuries is getting steeper.  This is an indication of a higher probability of a recession.  Yesterday, The Arora Report increased the probability of a recession in the US to 80%.  Please click here to see the ten crucial inputs that go into the ZYX Asset Allocation model.

The momo crowd is oblivious to the steepening yield curve.

Money Flows

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 🔒.

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

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.

Close

There appear to be 🔒 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.

Gold

The momo crowd money flows in gold are 🔒 since the Morning Capsule.

Smart money flows are 🔒 in gold since the Morning Capsule.

Oil

The momo crowd money flows in oil are 🔒 since the Morning Capsule.

Smart money flows in oil are 🔒 since the Morning Capsule.

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Buy Zones And Buy Now Ratings

🔒

Nibbling

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This post was published yesterday in The Arora Report paid services.  Since then the Morning Capsule has had an update in the paid services.

Markets can generate substantial wealth for knowledgeable investors. NOW YOU TOO CAN ALSO SPECTACULARLY SUCCEED AT MEETING YOUR GOALS WITH THE HELP OF THE ARORA REPORT. You are receiving less than 2% of the content from our paid services. …TO RECEIVE THE REMAINING 98% INCLUDING MANY ATTRACTIVE INVESTMENT OPPORTUNITIES, TAKE A FREE TRIAL TO PAID SERVICES.

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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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