By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Raise Cash And Hedges
Please click here for a chart of S&P 500 futures (ES_F).
Note the following:
- The chart shows when it started becoming clear that Russia was moving to attack Ukraine.
- The chart shows an initial big drop in stock futures.
- 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.
- There are cross currents.
- The chart shows the VUD indicator has not been solid orange and there have been two periods of green. This indicates that some investors are buying the dip.
- The chart shows that after the initial drop, the price has gone mostly sideways.
- Since most investors do not trade futures and all of this happened while the stock market was closed, expect many stops to be taken out this morning causing downward pressure. This is a negative.
- Expect margin calls putting further downward pressure. This is a negative.
- Psychological support is at the S&P 500 level of 4000. This is a positive.
- Expect significant buying from dip buyers between here and 4000. This is a positive.
- In our analysis, it will come down to what is Putin’s end game and what Biden does.
- Is Putin going to occupy only the eastern part of Ukraine?
- Is Putin going to occupy entire Ukraine?
- Will Putin try to topple the existing government and install a Russia-friendly government without much fighting?
- Will Ukrainian troops fight back?
- Will there be a prolonged encirclement of Kyiv by Russians or will the Ukrainian president flee?
- Will Biden impose severe sanctions like he has been promising?
- Cash and hedge levels are being raised. Consider the following:
- If Biden imposes weak sanctions, expect a sharp rally.
- If Biden exempts Russian oil and gas, expect a sharp rally.
- If Ukrainians quickly surrender, expect a sharp rally.
- The market is very oversold and primed for a sharp rally.
- If the Fed officials come out and make dovish statements, expect a sharp rally.
- Historically, war leads to an initial pullback and a sharp rally.
- If it was not for the prospect of stagflation, the call would have been to deploy cash and reduce hedges.
- For those who are following the protection bands, portfolios are already up to 44% protected. All investors are different. Up to 44% protection is adequate at this time without considering the prospect of stagflation.
- For most growth investors who are not retired or close to retirement, about 33% protection is the reference point – adjust it based on your own risk preference.
- After the changes, the protection bands will range from 30 – 51%. Please see the ‘Protection Bands and What To Do Now?’ section below.
- Adjust within the protection band range based on your own personal preference.
- Consider using small tranches to scale out of some positions to raise cash and scale in using small tranches to raise hedges preferably on rallies.
- Be nimble. Do not be surprised if there is a signal to deploy cash and reduce hedges very quickly.
- Events may change very quickly.
- There is a very high probability of a whipsaw.
- We will do Interim Capsules as needed to provide more guidance.
China
China has already come out in support of Russia.
- China refuses to call it an invasion.
- China is increasing imports of Russian commodities to support Russia.
- The emergence of China as a major power will make even severe sanctions against Russia less potent. This is a negative for the U. S. stock market in the long term.
Jobless Claims
Initial Jobless Claims came at 232K vs. 240K consensus.
GDP
Q4 GDP – Second Estimate came at 7.0% vs. 7.0% consensus.
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
Money is flowing out of stocks and into 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
API data was bearish but today it does not matter.
The momo crowd is 🔒 buying 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 🔒 as the market direction will depend on news from Ukraine and the type of sanctions Biden imposes. 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 $1957, silver futures are at $25.37, and oil futures are $99.21.
S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.
DJIA futures are down 743 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.
