By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
No Soft Landing
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:
- The volume on a chart can provide you with significant information.
- Even though the volume was heavier on Friday, it was less than the volume near June lows and earlier in May when many tech stocks bottomed. This is a negative for the stock market.
- The chart shows that the selloff in the market was on heavier volume compared to the rallies. This is a negative for the stock market.
- The chart shows that the volume was nowhere near capitulation volume. This is a negative. Please listen to the podcast titled “The Ten Secrets Of Epic Capitulation Riches.”
- Momo gurus have taken a part of the volume data and twisted it into a reason to buy stocks.
- Their new narrative is that the down volume on Friday was similar to the down volume on June 13 and June 16, 2022. The stock market bottomed on June 16, 2022, before a rally. Momo gurus contend that the stock market has bottomed now because of similarities to June lows and for this reason investors should take advantage of this dip and buy stocks now.
- Momo gurus’ new narrative to persuade you to buy stocks is highly flawed for three reasons.
- June 13 and June 16 were after an extended drop in the stock market. In contrast, August 26 was after a strong extended rally. What momo gurus are doing is like comparing conditions at the bottom of a mountain to conditions at the top of the mountain.
- Technical analysis is great when used properly, but it is not smart to ignore the macro. Right now, macro conditions do not support buying stocks.
- It is downright foolish to rely on technicals and ignore Powell’s very hawkish and unambiguous speech.
- The chart shows that the prior micro support zone has now become a micro resistance zone.
- The chart shows that on Friday the stock market closed at the bottom band of the micro resistance zone.
- The chart shows that in the early trade the stock market is below the micro resistance zone.
- There are three very important observations from Powell’s speech that investors should pay special attention to.
- The job of the Fed chair in his messaging is to assuage and comfort. Fed chairs have been doing this successfully in our over 30 years in the markets.
- Powell has been especially good at assuaging and comforting, but this was not the case in Powell’s last speech. Powell specifically emphasized “pain” is ahead.
- In the past, Powell and other Fed chairs almost always mention a soft landing to assuage. There is no mention of a soft landing in Powell’s last speech.
2-Year Treasury Yield
Of special note today is that the 2-year Treasury yield hit 3.489% before backing off to 3.421% as of this writing. At the high, it was a new high, higher than the high in June.
The 10-year minus 2-year yield curve is now more inverted. This indicates a higher probability of a recession than it was in June – yet the stock market is significantly higher than the June lows.
The yield curve is showing you that this is not a great setup to buy stocks at this time. Good set ups for buying stocks will come along as they always do – you need to be patient and disciplined.
The meme crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks this morning.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒 in the early trade.
The momo crowd is 🔒 in gold in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see gold and silver ratings.
The momo crowd is 🔒 in oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin is below $20,000 as of this writing.
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 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 $1751, silver futures are at $18.60, and oil futures are $94.60.
S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.
DJIA futures are up/down 212 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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