By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Half-Truths
Please click here for a chart of US Dollar Index (USDX).
Note the following:
- The chart shows that the dollar index has broken out.
- The impact of the dollar breakout is multifaceted. Many gurus are using half-truths about the dollar breakout to persuade investors to buy stocks. Keep in mind that their job is not your best interest, but to persuade investors to buy stocks.
THIS CLASSIC MISTAKE WILL COST YOU DEARLY – HERE IS HOW TO AVOID THE PITFALL
- Here is the narrative full of half truths that is taking hold.
- The dollar breakout is deflationary.
- Deflationary pressures from dollar breakout will cause the Fed to slow down rate increases and potentially even start cutting rates later this year.
- When the Fed slows down rate increases, the stock market will stage a big rally.
- Since this narrative is taking hold and the momo crowd does not do any deep analysis, a big stock market rally on this narrative will not be a surprise.
- The narrative about the dollar breakout is highly flawed for many reasons. Here are the key ones:
- The dollar is not breaking out for a good reason such as the US economy strengthening or a surplus in the US budget or the US exporting more than importing or the US national debt is decreasing or the divisions in the US population are lessening.
- The dollar is going up only because of interest rate differentials between the dollar and euro and also between the dollar and yen.
- In the dollar index, the euro has 57.6% weight, Japanese yen has 13.6% weight, and pound sterling has 11.9% weight.
- The European Central Bank (ECB) is in a very difficult position. On one hand, inflation is surging and on the other hand, the economy is about to go into a recession because of heavy dependence on energy from Russia.
- The Bank of Japan (BOJ) is still printing money.
- If the Fed slows interest rate increases, the dollar will likely fall.
- About 30% of earnings of S&P 500 companies are from overseas. The overseas earnings are worth less when translated to the dollar due to the strength in the dollar.
- In our analysis at The Arora Report, so far the impact of a strong dollar on earnings is about 2% reduction.
- Lower earnings are likely ahead. Market bulls are not prepared for lower earnings.
- Earnings season will start next week. Prudent investors will want to see the actual data before turning bullish.
- The dollar has a major impact, not only on the stock market but also on commodities such as gold, silver, oil, and copper, and in turn on stocks of companies that produce or use commodities. If you are interested in an in-depth podcast on the move in the dollar, please write to ambassador@thearorareport.com.
Semiconductors
Semiconductors are a leading sector in the stock market. Samsung Electronics of South Korea is one of the major semiconductor producers in the world. Samsung is guiding both sales and profits higher. This is creating positive sentiment in semiconductors and in turn tech stocks.
UK
UK Prime Minister Boris Johnson has resigned. Pound sterling and stocks in London are moving higher on the news.
China
China is embarking on letting local governments sell bonds worth $220B primarily for infrastructure projects. This should help Chinese stocks.
Jobless Claims
Initial claims came at 235K vs. 234K 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
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒 gold in the early trade.
For longer-term, please see gold and silver ratings.
Oil
After dipping below $100, oil is attempting a rally.
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 is holding above $20,000.
Markets
Our very, very short-term early stock market indicator is 🔒 but expect the market to open 🔒. 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 slightly 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 $1739, silver futures are at $19.26, and oil futures are $99.64.
S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3770, 3630 and 3600.
DJIA futures are up 196 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 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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This post was just published on ZYX Buy Change Alert.
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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.
