SMART MONEY SELLS BUT MOMO BUYS ON ‘NOT EVEN THINKING ABOUT THINKING,’ BITCOIN FALLS

Not Even Thinking About Thinking About

Please click here for a chart of    Nasdaq 100 ETF (QQQ).

Note the following:

• The Federal Open Market Committee (FOMC) minutes will be released at 2:00 pm ET today.
• This important event is bringing into focus Powell’s statement, “We are not even thinking about thinking about raising rates.”
• The Fed has been stubborn to stick with the policies formed before the following:
  • Development of the vaccine.
  • Blue sweep.
  • Biden borrowing heavily and sending free money to people who did not need it.
  • The success of the vaccine.
  • Economy opening up.
  • Strong economic data.
• Smart money is concerned that the Fed’s intransigence may prove to be a blunder and as a precautionary measure selling stocks.  It is important to note that smart money, so far, is not exiting the stock market, they are simply trimming positions.
• In contrast with the smart money, the momo crowd is thrilled about $120 billion of money printing every month, near-zero interest rates and heavy borrowing.  Nobody can blame the momo crowd for aggressively buying the dip – there are no signs of the Fed or Biden responding to the new data – they are stuck.
• The chart shows that the market is now below the line marked support/resistance but still above the line marked support. Investors should consider the space between the two lines as a battle zone.
• It is important for investors to stay neutral so that they can objectively observe the new data.
• There is no way to know who will win this battle.
  • On the side of the momo crowd is tremendous liquidity in the system.  A large part of the money that is being created and borrowed has gone into the stock market and real estate.
  • On the bear’s side, there is a powerful argument that the stock market rally from pandemic lows is an artificial construct and cannot be sustained forever.
• The chart shows that the Arora signals to sell momo stocks, to take partial profits, and to not add to or initiate new long term positions have been spot on.
• RSI shown on the chart has turned down and is now back at the oversold level.  Investors need to remember that oversold markets tend to bounce.

Crypto Tumble

In yesterday’s Afternoon Capsule, we shared with you Chinese regulators restating restrictions on financial institutions related to cryptocurrencies.  At that time, not many were paying attention to the report from China.  Now the report from China is getting coverage by the media and retail investors are getting scared and aggressively selling cryptos.  Some retail investors are misunderstanding in thinking that  China is banning cryptos – this is not the case and untrue.

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

Money is flowing out of cryptos and into gold.

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

For longer-term, please see gold and silver ratings.

Oil

API data showed a build in crude of 620K barrels vs. consensus of a build of 1.68M barrels.  This data is bullish.

There is concern developing that Biden will allow Iranian oil to come into the market.  Such a development will be highly bearish.

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

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is negative.  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 $1871, silver futures are at $27.80, and oil futures are $63.66.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.

DJIA futures are down 324 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, on dips, 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, 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.