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

Positive Technicals

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:

• Stock market technicals have turned positive on weak sanctions by Biden and maneuvering by Putin.

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• Biden calls his sanctions severe but they exempt almost everything that would have hurt Russia.
• Sanctions are either cosmetic in nature or Russia has workarounds.
• Putin is maneuvering this morning by offering talks.
• The chart shows another leg up in the premarket on the news that Putin is ready for talks.
• The chart shows that on the Russian attack, the market did not touch the lower support zone. This is a positive.
• The chart shows that on the Russian attack, the market closed at the high of the day. This is positive.
• The chart shows that on the Russian attack, the market moved into the resistance zone.  This is a positive.
• The chart shows that on the news of talks, the market is higher than the high of yesterday. This is a positive.
• The chart shows the volume was heavy during the rally after the start of the Russian attack.  This is a positive.
• The chart shows that RSI is exhibiting a positive divergence.  In plain English, this means that RSI was lower when the price was higher during the dip in January.  This is a positive.

Momo Gurus

Many momo gurus are claiming the bottom is in and urging their followers to buy.

Commodities – Russia

Russia is a major source of commodities such as wheat, nickel, oil, gas, aluminum, and palladium.  Money is flowing out of such commodities as astute investors have concluded that Russia has won with only a slap on the wrist. 

Macro Picture Gets Worse

Smart money pays significant attention to the macro picture.  The macro picture has become worse.

• The elephant in the room is inflation.
• The Russian situation will add to inflation.
• The U. S. already has $30 trillion of debt.  Defense spending will need to go up.  Democrats were hoping to cut defense spending.  The money for increased defense spending will likely come from more borrowing.
• The cure for inflation is higher interest rates and quantitative tightening.
• The Russian situation will make it more difficult for the Fed to do what is needed.  Wall Street is already celebrating that the Fed will slow down because of the Russian situation.
• Weak sanctions will encourage China to threaten Taiwan at the time of its choosing.  The majority of advanced semiconductors are manufactured in Taiwan.  These semiconductors are the backbone of the U. S. economy and tech companies.

All of the foregoing is very negative for the long term.  Investors need to make a sharp differentiation between the short term and the long term.

Personal  Income

Personal Income came at 0.0% vs. -0.3% consensus.

Personal Spending came at 2.1% vs. 1.5% consensus. There is an important observation here for investors – while consumer sentiment numbers are down, consumers continue to spend. Consumer sentiment is determined by surveys. What consumers are saying and what they are doing are two different things. Investors should pay attention to what consumers are doing not what they are saying.

Durable Orders

Durable Orders came at 1.6% vs. 0.6% consensus.

Durable Orders ex-transports came at 0.7% vs. 0.3% 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 gold and into speculative stocks.

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

Money is coming out of oil.

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒 oil in the early trade.

For longer-term, please see oil ratings.

Bitcoin

We have previously written that bitcoin is not acting as a hedge but as a risk asset similar to speculative stocks.  Money is flowing into bitcoin as investors are willing to take more risks thinking that Russia has won with only a slap on the wrist.

Markets

Our very, very short-term early stock market indicator is 🔒 due to conflicting technical and macro pictures.  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 $1893, silver futures are at $24.07, and oil futures are at $92.17.

S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4200, 4000, and 3950.

DJIA futures are up 134 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.

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 🔒 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 🔒 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.

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

No Sanctions On Russian Oil

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:

• In yesterday’s Afternoon Capsule, we shared with you that the stock market started recovering after Biden imposed weak sanctions. Please click here for the intraday chart showing the timing.
• The day chart linked above shows that the rally from the lows yesterday is continuing this morning on weak sanctions.
• How weak are the sanctions? Start with noting there are no sanctions on Russian oil. So far, financial media has failed to focus on this very important point for investors. This is an example of why sophisticated investors know that you cannot make money based on mainstream financial media. The U. S. has a long history of imposing sanctions on oil such as on Iran.  This indicates that the western leaders have no spine to act against Russia – they are just paper tigers.
• A significant part of the stock buying is stemming from the fact that there are no sanctions on Russian oil.
• The chart shows that on the Russia issue, the stock market dropped exactly to the low band of the support zone that we previously provided to you before the drop.  This is a positive.
• The chart shows that the stock market bounce from weak sanctions led the stock market slightly above the top band of the support zone.  This is a positive.
• The chart shows that in the premarket, on weak sanctions, the stock market is rallying above the support zone.  This is a positive.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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 🔒 oil in the early trade.  Smart money is 🔒 oil in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is rallying on risk reduction related to Russia. It is important for investors to note that contrary to the claims of the gurus, bitcoin is acting as a risk asset similar to speculative stocks and not as a hedge against risk.

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 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 $1902, silver futures are at $24.26, and oil futures are at $91.76.

S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

DJIA futures are up 232 points.

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

Stocks Recover

Please click here for a chart of  S&P 500 futures (ES_F).

Note the following:

• The chart shows about a 2% drop in stock futures on Russia’s move.
• Russia has recognized two separatist regions of Ukraine.
• Russia is sending peacekeepers to these regions. The U. S. says that the peacekeepers will be Russian soldiers.
• The media is promoting scary headlines but is not telling you the reality.
  • For a long time, the government of Ukraine has had no control over these regions.
  • These regions have been self-governing with de facto support from Moscow.
  • Russian fighters have been in these regions for years forcing Ukraine to give up control.
• What Russia has done now is simply formal recognition of the reality on the ground for years. 
• A new concern is that in a fiery speech, Putin appears to lay Russia’s claim on the entire country of Ukraine.
• Those who want the next level information on how stocks, bonds, gold, oil, and bitcoin react to war may want to carefully listen to the podcast titled War: Stocks, Bonds, Gold, Oil, and Bitcoin.  The podcast is now live. As an example, during World War II, DJIA went up about 50%.
• Ukraine and Russia are relatively small economies.  This Russian move by itself will have an immaterial impact on the world economy and the stock markets.  The risk to the world economy and the stock markets is from the sanctions that the U. S.  and its allies will impose.
  • The U. S. has threatened to impose the most severe sanctions. However, in The Arora Report’s analysis, the U. S. may consider not imposing the most severe sanctions at this time because imposing the most severe sanctions at this time will remove the deterrent for Russia to launch a full-scale invasion. 
• The chart shows the market making a higher low.
• The chart shows the speculation that Russia would not mount a full-scale invasion and a strong rally on this speculation.
• Here are the probabilities in The Arora Report analysis.
  • Full-scale invasion 25%.
  • A diplomatic solution found 25%.
  • Small incursions 50%.
• Here is what the stock market may do:
  • In the event of a full-scale invasion, the highest probability scenario is up to a 28% drop from the high.
  • In the event of a diplomatic solution, a sharp 7 – 12% rally.
  • In the event of small incursions, it will come down to the Fed and the nature of the sanctions imposed.
• 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.
• As of this writing, the VUD indicator shows that there is strong net demand for stocks.

Fed’s Hands Tied

Depending upon the nature of the sanctions, the Russian situation will tie the Fed’s hands.  If the Fed becomes less hawkish, the stock market will rally in the near term.  However, it will be negative for the longer term.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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 🔒 oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin bulls have been contending that bitcoin is a hedge against geopolitical uncertainty.  This is not proving to be the case.  Bitcoin fell on the Russia news.  Bitcoin is acting more like a risk asset and not as a hedge.

Markets

Our very, very short-term early stock market indicator is 🔒 as the market will move based on the nature of the sanctions and further moves from Russia.  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 $1905, silver futures are at $24.29, and oil futures are at $93.11.

S&P 500 futures resistance levels are 4400, 4460 and 4600: support levels are 4318, 4200 and 4000.

DJIA futures are down 107 points.